China takes new steps towards Yuan floating exchange rate

peoples Bank of ChinaThe Chinese authorities announced today the official commencement of foriegn currency services under free trade accounts. This follows from the FX funds operation earlier established in the Shanghai Free Trade Zone. Shangai being the priority choice since the area is becoming a hot zone for overseas firms wishing to establish in Chinese business from within the mainland.

The commencement of foreign currency services is a major stride towards opening up the region to foreign investors. As generally known, China is a highly attractive business environment, but has been quite difficult to penetrate. The new development marks a positive step towards encouraging foriegn investment.

Also, this marks a step towards the yuan’s free trade under capital accounts and Yuan floating exchange rate. These could lead to lower foreign exchange operating costs for companies and propel the yuan towards becoming a global exchange currency benchmark.

Local officials said last month that “the Shanghai FTZ would start a trial program for qualified individual investors to invest abroad, and permit limited amounts of the yuan to be used for free conversion within the year”.

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