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Yuan More Flexible

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SHANGHAI, China (Nov 25) – China took a big step on Friday towards allowing a stronger, more flexible yuan, a long-running demand of the U.S. administration, by launching a domestic currency swaps market with a $6 billion deal. The transaction came after the country’s foreign exchange regulators announced late on Thursday that they were going […]

SHANGHAI, China (Nov 25) – China took a big step on Friday towards allowing a stronger, more flexible yuan, a long-running demand of the U.S. administration, by launching a domestic currency swaps market with a $6 billion deal.

The transaction came after the country’s foreign exchange regulators announced late on Thursday that they were going ahead with a long-awaited system of market makers to trade the yuan against foreign currencies.

The dollars lent out by the central bank will help grease the wheels of this new market, reducing its dominant role.

Economists said that, strictly speaking, the terms of the swap had no implications for the future value of the yuan, known also as the renminbi.

Dealers said the central bank sold dollars to 10 domestic banks at the current exchange rate of 8.0810 yuan per dollar with an agreement to buy them back in a year’s time at 7.85 yuan.

The implied yuan rise of about 2.9% reflects nothing more than the difference between U.S. and Chinese interest rates.

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