China considers plan to widen yuan trading limit after major Communist Party meeting
Move to liberalise exchange rate controls follows growing pressure for reform, but critics warn that it could be seen as a largely symbolic gesture
China’s central bank is considering a widening of the yuan’s trading band following an important Communist Party meeting this year – a largely cosmetic move that would burnish its reform credentials as official policy focuses on reducing debt.
The People’s Bank of China (PBOC) could widen the yuan trading range to allow it to rise or fall by 3 per cent against the dollar from the daily mid-point rate set by the central bank, according to four sources familiar with internal policy discussions. The current band allows for 2 per cent fluctuations.
The measure would allow the central bank to argue the yuan’s liberalisation was on track and could be useful in trade talks with Washington. However, tight controls on capital outflows and the level at which the yuan starts trading each day would reduce its impact, the sources said.
“A yuan band widening is possible. There could be some internal consensus on this,” said one source who advises the government on policy. “But the impact won’t be big – it may just be a gesture to express the commitment to long-term market reform.”
Indeed, there seems to be little immediate pressure to widen the band – the yuan has never tested the 2 per cent daily limit that was introduced in March 2014.