China gives currency more freedom with new reform

The legendary Jim Sinclair has predicted that the US dollar will undergo a significant decline beginning in June.  That is now less than a month and a half away.  New agreements bypassing the dollar for trade settlement are now appearing almost daily.  The yuan’s replacement of the US dollar as the world’s reserve currency takes another two steps forward.

(Reuters) – China took a milestone step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further liberalizes its nascent financial markets.

The People’s Bank of China said it would allow the yuan to rise or fall 1 percent from a mid-point every day, effective Monday, compared with its previous 0.5 percent limit.

The timing of the move underlines Beijing’s belief that the yuan is near its equilibrium level, and that China’s economy, although cooling, is sturdy enough to handle important, long-promised, structural reforms, analysts said.

The move would help China deflect criticism of its controversial currency policy ahead of the annual spring meeting of the International Monetary Fund in Washington next week.

A slowing world economy that has pared investor expectations of a steadily rising yuan likely also gave Beijing the confidence to proceed, knowing that a larger band would not necessarily lead to a stronger currency.

“The central bank chose a good time window to enlarge the trading band. The market’s expectation for a stronger yuan is weakening,” said Dong Xian’an, chief economist at Peking First Advisory in Beijing.

“The move partially clears away doubts on whether China can manage a soft landing in its economy, and makes clear China’s reform road map.”
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