Forex Blog: Currency Trading News & Analysis.

April 18th 2005

China is capable of floating currency

According to a top Treasury department official, China is fully able to float the Yuan. Recent improvements and reforms have left China with the mechanisms and structures needed to float its currency. It has taken steps to liberalize its current account, so as to allow the outflow of USD. It has appointed several prominent international banks to serve as market-makers in the new foreign exchange market. The Chinese government has even dispatched top officials to the Chicago mercantile exchange, which will likely serve as a model for China.

Yuan-denominated currency derivatives, such as swaps, futures, and options are already extremely popular. At this point, they serve as a mere hedge against revaluation. In the future, however, they may take on a more important role, as the Yuan will surely become one of the most frequently traded currencies in the world. The only thing that is preventing China from floating the Yuan tomorrow is China, itself. The Chinese government has used a cheap Yuan for over a decade to buttress its policy of export promotion, and is understandably nervous about the impact a revalued Yuan will have on its economy.

Read More: China can float its currency, U.S. official says

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Posted by Adam Kritzer | in Chinese Yuan (RMB) | No Comments »

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