China May Free Yuan within 5 Years

The 2nd largest economy in the world, China will open its markets and thereby allow the currency to float within the next 5 years, as stated by the Chief Executive Officer of Hong Kong Exchanges & Clearing Ltd.; Charles Li. Li added that China needs to reform the current interest rate system that it has in place now. Based on the current system, the major Chinese currency, Yuan is only allowed to increase or decrease within a narrow range, as it is limited by the country’s Government.

The Yuan forwards have increased for the 7th straight day now as optimism is there in market that the Asian powerhouse will embark on further currency reforms. Incidentally, Yuan traded close to 19-year high against the greenback as Zhou Xiachuan, the Governor of Chinese Central Bank, declared that China should be on high alert over inflation. He reiterated importance of gradual reform for convertibility of Yuan.

According to the Chief Executive Officer of Eurex AG, Andreas Preuss, Asian market holds future for most of the investors. He added that as population is growing in this region, so as average wealth; it is obvious that demand for options and futures contracts will be created over here.

As far as the data of People’s Bank of China is concerned, the proportion of international transactions conducted through Yuan increased to 9% from 1% of the year 2009. Incidentally, on the very same year, China started a pilot program that allowed usage of Yuan to complete international transactions.

By the next 2 years, more than one-third of the total cross-border trade of China will be done through Yuan, according to the HSBC forecast report published in this week. Incidentally, if this happens, Yuan will become one of the 3 most used currencies for worldwide trading; the other 2 being Euro and USD.

Incidentally, Paris, Zurich and London are currently racing against each other to become the new center for Yuan trading in the Euro region, as Chinese Government has intentions of taking it to entire world. Incidentally, the Bank of England recently announced that it is ahead in the race to become first of the Group of 7 countries to sign a currency-swap agreement with People’s Bank of China after a meeting was conducted in February. If it happens, UK Central Bank may supply 400 billion Yuan to banks.