Monitor | Widening the yuan's trading band won't solve anything
By fixing the rate higher each day, the authorities have encouraged more inflows, forcing them to intervene to buy even more foreign currency
Yesterday the mainland's currency, the yuan, climbed to its strongest level against the US dollar since its 1994 devaluation.
The latest in a series of recent highs, yesterday's gain prompted fresh market speculation that the authorities in Beijing are preparing to widen the yuan's permitted trading band, a move widely regarded as the logical next step towards currency liberalisation.
In reality, however, widening the yuan's trading band will do little to ease official constraints on the mainland's foreign exchange market, and nothing to solve the currency problems now confronting Beijing.
Expectations of further reform have been running high since the middle of last month when People's Bank of China deputy governor Yi Gang said the yuan's trading band would be widened "in the near future".
Swiss Bank UBS forecast that the band would be eased within days, while the South China Morning Post intoned in an editorial that "widening of the yuan trading band is in the best interests of China".
Yet weeks after Yi's comment, the central bank still hasn't moved. And if officials are now having second thoughts, they have good reason.