MercoPress. South Atlantic News Agency

China makes technical adjustment to floating Yuan

China made a technical adjustment Friday to its currency trading rules two months after it revalued the yuan for the first time in a decade.

The announcement by China's Central Bank came hours before Finance minister Jin Renqing and Bank governor Zhou Xiaochuan were scheduled to meet with financial leaders of the Group of 7 industrialized countries.

The Central Bank said the yuan would now be allowed to fluctuate more widely against non dollar currencies, but will have to keep within a narrow 0,3% trading band against the US currency.

Since last July the yuan or renminbi floats to a limited extent against a basket of currencies from China's main trade partners, the US dollar, Euro, Japanese Yen, South Korean won, UK pound, Thai baht, Russian rouble. With the latest adjustment the yuan will now be allowed to up or down 3% of its value against these currencies during a single day of trading.

The limit so far had been 1,5%. Last July 21 China raised the value of the yuan to 8,11 to the dollar from 8,277. Since then China has allowed its currency to strengthen only 0,03% a week against the dollar which works out at an annual appreciation of 1,6%. Before July 21 US officials were calling for a 15% appreciation.

The move was described by analysts as a mere technical adjustment to the current policy. "This further improvement of the renminbi exchange rate management system would allow banks further freedom to set prices autonomously and greater ability to manage foreign currency risk effectively," the People's Bank of China said in a release.

The People's Bank of China hinted that its announcement was guided in part by concern that someone might figure out a way to manipulate its complex system. "As banks will be able to set values within a greater scope, costs for speculators may be increased, which would be beneficial to maintaining the stability of the renminbi exchange rate.