Market will play bigger role in setting value of China’s currency, says central bank adviser
China’s move to tweak its management of the yuan fixing mechanism shows the authorities’ desire to further liberalise the currency’s exchange rate, according to an adviser to the nation’s central bank.
“The countercyclical factor was designed to reduce irrational herd mentality,” said Huang Yiping, a professor at Peking University and a member of the People’s Bank of China monetary policy committee during an interview in New York. Now that the exchange rate “has stabilised for quite some time, the market force should play a bigger role”, he said.
The central bank has effectively removed the countercyclical factor in calculating the yuan’s daily reference rate that was introduced less than a year ago, Bloomberg reported on Tuesday. The move, which analysts said may increase the volatility of the exchange rate, prompted the yuan to decline the most in almost three months.
Exchange-rate liberalisation is just one of a series of reforms on China’s plate. In a wide-ranging discussion on the sidelines of a conference, Huang said that freeing up interest rates should be a priority this year. Chinese policymakers might take bigger steps to mitigate financial risks, he also said.
