Yuan to Float Freely by 2015 Say China Experts
China has already created the conditions to have the yuan become fully convertible and won’t delay that liberalization beyond 2015, said a leading economist at the China Center for Economic Research (CCER) at Peking University.
“There is no ‘U-turn’ way left for China,” said Huang Yiping, a professor of economics at Peking University’s CCER, “and the exchange rate of the yuan will definitely float freely in two or three years.”
He made the remarks at the Second Global Think Tank Summit in Beijing.
In 1996 China made the yuan convertible into other currencies when settling trade, but hasn’t allowed transactions of local financial assets into foreign assets at market exchange rates, fearing that such a move would stoke real estate and equity bubbles.
Huang said conditions are now right for the Chinese government to remove the threshold for converting yuan into other currencies under the capital account, thereby letting the yuan to play a leading role in global trade and investment.
“If we look at China’s macro environment, including fiscal conditions, financial system and our external account situation, I think all of these are much better than those of countries such as Indonesia, India, Russia, when they just opened up capital accounts,” Huang said.
Liberalization of the capital account does not mean an end to controls on capital flows.
“For example, we can put short-term capital flows under control through Qualified Foreign Institutional Investors and Qualified Domestic Institutional Investors regulations,” noted Huang.
The yuan needs to be more freely convertible and widely used in global trade to be included in the SDR basket of the IMF, John Lipsky, acting managing director of the IMF, said earlier this month in Beijing.
China could achieve full convertibility of the yuan by 2015, said Wu Xiaoqiu, senior finance professor of Renmin University of China.
By 2025 the yuan could become a major global currency together with the U.S. dollar and the euro, the World Bank said in a report last month.
Some observers worry that full convertibility of the yuan and a market-based exchange rate will lead to rising inflation and asset bubbles.
“The problems of China’s economy are made in Washington,” said Ronald McKinnon, economics professor at Stanford University, told China Daily on Sunday. “The near-zero interest rate of the US has caused ‘hot money’ inflows into China, and the Chinese central bank has big trouble controlling this.”
China’s capital control on inflows is probably right and the yuan’s exchange rate should remain stable to fend off these risks, he said.