China Vows to Keep Yuan at Reasonable Level After SDR Inclusion

  • China will continue `managed floating' exchange rate system
  • China to start financial innovations in selected areas

China’s cabinet will continue a “managed floating” exchange rate regime and maintain the basic stability of the yuan at a reasonable and balanced level after it was added to the International Monetary Fund’s basket of reserve currencies.

China welcomes the inclusion of the yuan in the Special Drawing Rights basket and vows to dissolve risks and improve the mechanism to orderly push for the currency’s convertibility under capital account, the State Council said in a statement on Wednesday.

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The pledge may ease concern the yuan will weaken amid speculation China’s central bank will rein in intervention now that the IMF vote on reserve currency status is out of the way. The central bank will have a more hands-off approach and develop enough confidence to give market forces greater say, Paul Mackel, head of emerging markets foreign-exchange research at HSBC Holdings Plc in Hong Kong, wrote in a note on Tuesday.

Yuan’s addition into SDR means the balance of risks remains tilted toward depreciation in the longer term, Tom Orlik, Bloomberg Intelligence’s chief Asia economist, said in a note on Monday.

The government will start pilot programs on financial innovation including small business financing at Taizhou city of eastern Zhejiang province, rural financial reform in northeastern Jilin province, and free trade zones in Guangdong, Tianjin and Fujian province, according to the statement.

— With assistance by Jun Luo

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