Chinese companies can now buy foreign ones with yuan; foreign firms can invest yuan raised offshore in their operations on the mainland.
The problem is that conversion of the foreign currency into yuan would put upward pressure on the yuan and so force the central bank to buy yet more foreign currency to hold it down.
Despite the central bank's heavy purchases of foreign exchange, the yuan rose by 2.8% against the dollar in the year to January, even as the currencies of other emerging markets plummeted.
Its new language strips that away.In this section A goring concern When the talking has to stop The economics of bluffing Undue credit Compacts of god Feeling valued Homeowning Hamlets A weighting game Marjorie Deane internships Reprints Related topics International Monetary Fund (IMF) China Business The yuan Foreign exchangeThe change was a long time in coming.
Moreover, if the capital account was opened (which is unlikely over the next four or five years), allowing firms and households to hold foreign assets, the yuan would probably fall, not rise, as the Chinese diversified their savings.These arguments help to explain why the Chinese have so far ignored American demands to revalue their currency.
"If the central bank stops buying foreign exchange, the yuan will appreciate sharply, which is unacceptable," Li was quoted by the report on the website: www.caijing.com.cn.
The PBOC has so far succeeded in "sterilising" most foreign-exchange inflows printing yuan to buy incoming dollars and then selling bonds to banks in order to mop up the resulting excess liquidity.
Beijing has also maintained a tight control over foreign investments in yuan-denominated assets.
China's central bank has set up swap agreements with the central banks of many of its emerging-market trading partners, ranging from Singapore to Kazakhstan, allowing foreign banks to supply yuan to their customers.By the end of July yuan deposits in Hong Kong had swollen to 572 billion.
The Anglo-Australian miner, the world's largest, sold record amounts of iron ore and oil, but gave warning that demand from China was likely to slow in the second half of the year.McDonald's, an American fast-food chain, became the first non-financial foreign company to issue yuan-denominated bonds in Hong Kong, raising 200m yuan ($29m).
