China announced that it is widening the Yuan trading value to 2 percent, allowing the Yuan fluctuate against the dollar and more than double in size each day.
Widening the trading band will help to “optimize the efficiency of capital allocation and market allocation of resources to accelerate economic development,” said a central bank statement.
China Widening the Yuan Trading Value
The modest easing of exchange rate controls has been criticized by Washington and other trading partners, adding to a flurry of reform initiatives aimed at making its slowing economy more efficient.
Leaders of China’s Communist Party are widening the trading value of the Yuan to inject more competition into the sluggish economy and help to nurture an economy that will have more self-sustaining growth based on domestic consumption instead of trade and investment.
Washington and other governments are complaining that by suppressing the value of the yuan, it will unfairly make Chinese exports cheaper abroad and hurt foreign competitors.
The economic growth in China fell to a decade low 7.7 percent last year. This year’s official growth target is slightly lower at 7.5 percent.
Premier Li Keqiang promised in an annual policy speech last week to give market forces a “decisive role” in allocating credit and other resources in the state-dominated economy, so this move was expected.
Chinese leaders say they plan eventually to let the yuan float freely, but private sector analysts say that might be decades away.
Allowing the yuan to rise in value would increase the buying power of Chinese households, helping to achieve the ruling party’s goal of nurturing more sustainable economic growth based on domestic consumption instead of trade and investment.
A stronger yuan also could help to suppress pressure for politically sensitive consumer prices to rise by making imports cheaper.
Currently 1 Chinese Yuan is equal to $0.16 of the U.S. dollar and the yuan has been trading at about six to the dollar. Analysts say Beijing might allow that to rise to 5.88 to the dollar by mid-2014, a rise of about 2 percent. That would be small by global currency market standards but unusually large for China .
China Widening the Yuan Trading Value to 2 Percent to Inject Competition Into the Economy.
The Associated Press contributed to this story.