FX.co ★ Yuan to float free at last

At the annual Futures Industry Association conference, head of Hong Kong Exchanges & Clearing Ltd Charles Li announced China is going to open up its markets and make the yuan free-floating. The yuan exchange rate is to undergo reforming, so that the Chinese currency becomes fully convertible within five years.
“China has to reform its interest rate system,” Mr Li said. He also added that the existing system, which keeps the yuan unconvertible, cannot last forever.
“I would expect China to increasingly move towards a managed float with more flexibility,” Irene Cheung, a foreign exchange strategist at Australia & New Zealand Banking Group, thinks. She said convertibility is possible in five years, “but it might not be 100 percent convertible”.
The yuan rate had been stable until 2005. Between July 2005 and July 2008, China’s authorities let the national currency surge by some 21% in dollar terms. The yuan rate held steady thereafter until 2010 when the Chinese currency rose against the greenback by 10% more.