Yuan Rises to 17-Year High on Signs China Will Allow More Gains

China’s yuan advanced to a 17-year high after the government said it plans to expand cross-border use of the currency and improve foreign-exchange management at the weekend’s National People’s Congress.

The People’s Bank of China set the reference rate for yuan trading at the strongest level since July 2005 after the government said March 5 it will broaden the avenues of investment for its foreign-exchange reserves, according to documents released in Beijing at the meeting.

“We expect ongoing liberalization and that will include further appreciation,” said Patrick Bennett, a Hong Kong-based strategist at Standard Bank Group Ltd.

The yuan rose as much as 0.09 percent to 6.5628 per dollar, the strongest level since China unified official and market exchange rates at the end of 1993. The currency closed at 6.5634 in Shanghai, according to the China Foreign Exchange Trade System.

Twelve-month non-deliverable forwards fell 0.02 percent to 6.4075, reflecting bets the currency will strengthen 2.4 percent in a year from the spot rate, according to data compiled by Bloomberg. The central bank set the reference rate 0.03 percent higher at 6.5651. The currency is allowed to trade up to 0.5 percent on either side of the official rate.

The use of the yuan in international trade still needs some time, Zhang Xiaoji, head of overseas economic research at the State Council’s Development Research Center, said March 5.

The exchange rate is the closest to “equilibrium” as it has ever been, central bank Deputy Governor Yi Gang said March 5 at the meeting. Bolstering domestic consumption, restructuring the economy and reducing surpluses will help the currency reach equilibrium, Yi said.

Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, said this means that the government believes the currency is moving closer to “market fair value.”

--Sonja Cheung, Fion Li. Editors: Simon Harvey, Dirk Beveridge

To contact the reporter on this story: Sonja Cheung in Beijing at scheung58@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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