Fri, Jul 04, 2014 - Page 15 News List

China takes a small step toward yuan liberalization

AFP, SHANGHAI

Chinese banks can now set their own exchange rates between the yuan and the US dollar for some customers, the government said, in a small step towards liberalization of the tightly controlled currency.

Banks can decide the “spread” — the range between the buying and selling price — for customers based on market demand, according to a statement by the People’s Bank of China posted on the Web site of the State Administration of Foreign Exchange late on Wednesday.

The announcement comes before key talks next week at the Strategic and Economic Dialogue between China and the US, which is expected to push Beijing for greater economic reforms.

China keeps a tight grip on the yuan, allowing it to move up or down 2 percent daily on either side of a mid-point set under the supervision of the central bank.

The latest announcement aims to “further improve the market-oriented yuan exchange rate formation mechanism,” the People’s Bank of China said in the statement.

Previously, the bank set specific limits on the bid-ask spread depending on the transaction type, state media said.

Analysts said that the impact of the shift would be limited as it was aimed at retail customers, who make up a small proportion of foreign exchange trading, while corporate clients are already offered more market-based rates.

“This reform will not have any impact on renminbi exchange rates or the formation of mid-point prices,” Liu Dongliang (劉棟樑), a senior analyst with China Merchants Bank (招商銀行), said in a research note.

China has been promoting greater international use of the yuan and taking measures to make its exchange rate more flexible, although full convertibility of the currency remains far off, analysts say.

The central bank in March doubled the daily trading band for the yuan against the US dollar from 1 percent to 2 percent.

The government could further expand the daily trading limits between the yuan and other foreign currencies as part of future reforms, Liu said.

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