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China takes another step towards flexible yuan
(Reuters)
Updated: 2006-01-04 19:54
China took another step towards currency flexibility on Wednesday by letting
banks set its daily opening foreign-exchange rate, a change that might allow the
yuan to move much faster than previously possible.
The new system, the latest in a long line of policies aimed at gradually
freeing up the yuan, accompanied the introduction of open over-the-counter
trading that will eventually replace the current system of anonymous and
automatic order matching.
The changes, announced late on Tuesday, went into operation on Wednesday.
The yuan remains tied to a 0.3 percent range on either side of a daily mid
rate against the dollar.
But whereas the mid rate has until now been the previous day's close,
allowing only very slow movement, it will now be the average quote of market
makers -- theoretically allowing a rise at the opening of trade each day.
"The old system was effectively a crawling system that limited day-to-day
movement within 0.3 percent," Jun Ma, Deutsche Bank's Greater China chief
economist, said in a research note.
"This change theoretically allows a very different central parity rate from
the previous day's closing price."
But maybe only theoretically.
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