The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.
Beijing's liberalising of yuan courageous, says Xinhua commentary
China's moves to liberalise its currency have been courageous given the economic risks, and the next areas for reform include land policy, state-owned industries and taxation, Xinhua said in a commentary yesterday.
The news agency criticised Western politicians who have accused China of keeping its currency artificially low for ignoring the intricacies of the issue even while manipulating their own currencies.
"Tens of thousands of low-end manufacturers operating at a low profit margin have had to take a significant loss over a stronger RMB yuan," Xinhua said in the commentary, using the initials for renminbi, the official name of the currency.
"The world is awash with easy money from the United States and Japan, which seeks higher returns from emerging economies, including China. Hot money flows in and out of China could paralyse the country's macroeconomic policy tools."
China has had to balance the benefits from a freer currency, including curbing inflation and speculative flows, against the risk of severe economic shock such reforms could bring, it said.
"To allow more flexibility for China's yuan is easier said than done."