The People’s Bank of China will soon widen the yuan’s trading band from its current constraint of one percent in either direction, according to its vice governor, Yi Gang.
On his visit to Washington, for the 2013 Spring Meetings of the World Bank and International Monetary Fund, Yi addressed U.S. criticism that China has kept the yuan's exchange rate artificially low to boost the competitiveness of its own exports.
"In the near future we are going to increase the floating band even further," Yi said Wednesday in the Wall Street Journal.
China has said more than once in recent weeks that under the new leadership of Wen Jiabao, the world's second-largest economy would ease its control over the yuan -- something the U.S. in particular would like to see. Last month, the new premier vowed to “step up exchange rate reforms,” the BBC reported. And the head of the Hong Kong bourse also said last month that China would allow its currency to float freely within five years, according to Bloomberg.
China first began to allow the yuan to trade on a narrow band in July 2005, but when the global recession hit in 2008 the country reeled in an upward trend in the value of its currency to curb the losses on exports. In June 2010, the central bank again loosened control, and in April 2012 it doubled the band from 0.5 percent in either direction of the country’s daily reference rate to one percent.
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Even if the yuan is allowed to float more freely, the central bank would maintain the power to control its value, but investors would be able to see trends in the government’s monetary policy.