China’s yuan currency weakened against the US dollar yesterday, the first trading day after a landmark move by Beijing aimed at liberalizing its tight controls over the currency.
The People’s Bank of China said on Saturday the unit would be allowed to fluctuate by 1 percent above and below a daily midpoint, double the previous 0.5 percent.
The long-awaited move followed pledges by Chinese leaders to make the tightly controlled exchange rate more flexible as a step toward allowing the yuan to become freely convertible.
“There has been a flurry of recent reforms affecting the [yuan] and the broader financial sector, all of them pointing in the direction of more liberalization,” Capital Economics chief Asia economist Mark Williams said.
“The wider band lays the groundwork for a more market-driven and volatile exchange rate regime somewhere down the road,” he said in a research note.
Yesterday, the the People’s Bank of China set its trading midpoint at 6.296 yuan to the US dollar, weaker than Friday’s central parity rate of 6.2879.
In late morning trade yesterday, the yuan stood at 6.3145 to the US dollar, according to Dow Jones Newswires, with the Chinese currency weakening on worries over the country’s slowing domestic economy.
Analysts said the move followed confidence among policymakers that the currency would not appreciate sharply, despite accusations by major trading partners that China keeps the yuan weak to benefit its exporters.
“The consensus in Beijing is that the room for [yuan] appreciation seems quite limited,” said Bank of America China economist Lu Ting (陸挺) said.
“With falling trade and current account surplus, external pressure on China to appreciate ... has been alleviated,” he said in a report.
In the January-March -period, China’s trade surplus was just US$670 million, official data showed last week.
“China may be sending a signal that the unilateral appreciation has come to an end,” Beijing-based HSBC macro-economic analyst Sun Junwei (孫君瑋) said.
“The time is ripe for China to carry out certain reforms, and we think the government may launch a series of financial reforms to increase the flexibility of the exchange rate,” she said.
China and the US, in particular, have been locked in a dispute over the value of the yuan, which US politicians say is kept artificially low to help Chinese exporters, leading to a massive trade gap.
US Ambassador to China Gary Locke last month urged Beijing to end its “unfair” currency policies.