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PBOC Says More Yuan Flexibility Coming

China needs to make the yuan more flexible to cope with possible rises in capital flows, a senior researcher at the People’s Bank of China (PBOC) said on Tuesday.

Ma Jun, the chief economist at the central bank’s research bureau, told a forum that China’s net capital flows may not be as big as some expect once the country frees its closed capital account.

However, he said capital inflows into China’s bond market could increase as domestic bond yields are higher relative to overseas markets. This provides an arbitrage opportunity for investors compared with the yuan, which has limited scope to move.

Ma also said that as China’s capital account is already partially open, there could be “a substantial increase” in outbound foreign direct investment (FDI) if China further loosens its grip on capital flows.

“China needs to further increase the yuan’s flexibility,” said Ma, a former chief China economist at Deutsche Bank who joined the PBOC in April. Even though China in theory has a closed capital account, speculators can still sneak their cash into the world’s second-largest economy through a variety of channels, such as disguising their money as export revenue.

via Reuters [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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