People's Bank of China (PBOC) Governor Zhou Xiaochuan Signals Possible Loosening Of Yuan Trading Range

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Yuan
Yuan notes.

China’s central bank governor, Zhou Xiaochuan, floated the possibility of accelerating currency reform by allowing markets to have more freedom to set the yuan’s exchange rate, Reuters reported Wednesday.

The announcement comes just days after China’s leadership, concluding its Third Plenum, unveiled a 60-point plan consisting of the most sweeping set of economic and social reforms in nearly three decades. Zhou has repeatedly advocated for loosening control of the nation's currency, which is also known as the renminbi.

Dariusz Kowalczyk, an economist at Credit Agricole SA (EPA:ACA) in Hong Kong, told Reuters that the governor's comments could mean that the People's Bank of China (PBOC) will widen the yuan’s trading band in the near term.

"That probably means there is more upside for the renminbi," he said. The yuan has risen this year to 6.09 per dollar from 6.23 at the end of 2012 and hit a record high of nearly 6.08 in October.

There was little evidence of any new freedom for the currency in trading Wednesday. The central bank set its daily starting-point fix at a record high. Open-market gains were later offset by state-run banks, likely selling the currency on behalf of the central bank.

 The plan announced by the Chinese leadership this month to quicken the pace of economic reforms, including stepping up the pace to make the Chinese currency yuan fully convertible, heralds a new phase of active cross-the-border capital flows in and out of China, say economists cited by Shanghai Securities News.

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