IMF Welcomes China’s Move to Greater Yuan Rate Flexibility

China’s unexpected move to allow the yuan to trade more freely is a step the right direction, but additional measures need to be taken, according to the International Monetary Fund.

The policy change is “a welcome step” that should allow market forces to play a greater role in the yuan’s development, the IMF said in a statement.

“Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets,” the IMF said.

China’s central bank generally sets a daily midpoint for the yuan, around which the currency can move up and down within 2%. But on Tuesday, the People’s Bank of China surprised markets by announcing that going forward, the midpoint will be based on the previous day’s closing price.

The world’s second-largest economy has historically tightly controlled its currency, which has helped boost trade and spur growth. But over time, the government has loosened its grip a bit — for example, last year, it doubled the allowable trading band for the yuan.

via CNN

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza