China looks at capital account convertibility of renminbi

China's renminbi (yuan) will soon be a freely convertible currency, according to the outgoing chief of the country's central bank, Zhou Xiaochuan. Chinese magazine `Caixin' has quoted Xiaochuan as saying that China was not too far from its goal of capital account convertibility. As of now, the currency is convertible on the current account.

A fully convertible renminbi would allow free capital flows into the country and China could hope to challenge the might of dollar as the world's reserve currency.

Convertibility, however, is unlikely to come very soon. China is expected to announce various steps on its way to making the last step.

Early last year, Yi Gang, the head of the state administration of Foreign Exchange, stated that China would make the renminbi convertible on the capital account in five years while SAFE, a division of the central bank, confirmed plans to introduce a series of steps to manage the transition.

To begin with, Beijing is expected to allow more flexibility and relax the existing trading band in managing the remminbi, the magazine quoted Zhou Xiaochuan as saying.

Chang points out that on any given trading day, the currency is allowed to float in a band 0.5 per cent above or below the price set by the central bank, an improvement from the 0.3 per cent band that existed until May 2007.