Saturday, June 19, 2010 - China gives in, finally makes yuan more flexible

China’s central bank said on Saturday that it would make its yuan exchange rate more flexible, in what analysts said was an indication that Beijing was ready to scrap the dollar peg and allow its currency to rise. 

However, the People’s Bank of China said there were no grounds for “large swings” in the currency, suggesting that policymakers would maintain a tight grip on the value of the yuan. 

The announcement was welcomed by US Treasury Secretary Timothy Geithner, who said the move would make a “positive contribution” to global growth once implemented. 

IMF chief Dominique Strauss-Kahn said it was a “very welcome” announcement that would help Chinese households and consumers. 

The statement by the central bank was released amid pressure on Beijing to strengthen its currency and comes ahead of next week’s G20 nations’ meeting in Toronto, where the controversial policy is expected to be on the agenda. 

“China’s central bank has decided to further promote the reform of the RMB (yuan) exchange rate mechanism, and strengthen the flexibility of the RMB exchange rate,” the central bank said on its website. 

However, it stressed that it would continue to manage the floating exchange rate “within the band already announced”. Central bank adviser Li Daokui said he had no idea when the trading band would be widened.