Change in Yuan trading rules may spur appreciation

Earlier this week, the Bank of China issued permits to several foreign and domestic banks, which enable them to serve as market-makers for the Chinese Yuan. Yesterday, the Bank of China further explained the new system, stating that the Yuan’s daily opening price would be calculated based on an average of spot rates offered by 13 market-makers. While the Bank of China, through its forex reserves, could still
technically manipulate the value of the Yuan, this latest development makes it more likely that the Yuan will be allowed to appreciate in 2006. In fact, futures markets have priced in a 4.3% appreciation for the entire year. Some currency strategists are even more bullish, as the Financial Times reports:

We remain convinced further renminbi strength is highly likely,” said Thomas Stolper, global markets economist at Goldman Sachs, who sees the renminbi rising 9 per cent to Rmb7.34 to the dollar by the end of 2006.

Read More: Renminbi expected to rise after new trading rules