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BBC World Service

China taking steps to open up its currency

Marketplace Staff Apr 16, 2012

David Brancaccio: China is taking a big step toward letting markets decide how much its currency is worth when converted into dollars, euros, what have you. China lords over its currency the way a pilot manages the air speed of a plane — not much laissez-faire. Now, Chinese officials say the yuan will be allowed to float within a wider range. This has everything to do with how cheap U.S. goods are in China and how expensive Chinese goods are here.

To help us understand, we say good morning to the BBC’s Juliana Liu in Hong Kong.

Juliana Liu: Good morning.

Brancaccio: What is the significance of this step, where the currency is allowed to trade within a wider band?

Liu: Well I would say this is the most significant change in the way that China manages its currency in about five years. They have the intention of allowing its currency to float freely, but of course, the timing at least, was messed up by the Great Recession. So basically, China’s going back onto that route, and eventually they want the yuan — the Chinese currency — to become a global reserve currency, perhaps on par with the U.S. dollar.

Brancaccio: Now, a wider trading band implies it could appreciate, which from the perspective of the United States is what the U.S. would like to see.

Liu: Absolutely. Since 2005, it’s actually appreciated by about 30 percent. And interestingly, today, what happened was, the Chinese currency actually lost value against the U.S. dollar. So, given that the band is wider now, there could be appreciation, but it also could depreciate.

Brancaccio: Now, these policy changers announced in English — is that a rare occurrence? It suggests that the foreign audience was being targeted…

Liu: Absolutely. The timing seems to coincide with the IMF and the World Bank meetings, and the G20 meetings. So it certainly does seem to be targeting a foreign audience — an English-speaking audience — to let them know that China’s opening its currency.

Brancaccio: Juliana Liu, BBC, Hong Kong. Thank you very much.

Liu: Thank you.


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