Sources told Reuters that policymakers in China are comfortable\u00a0with the yuan’s rise to its highest level in two and a half years, at a time when the recovery of the world’s second-largest economy accelerates and the central bank gives the market more freedom in determining the currency’s value.<\/p>\n\n\n\n
But sources involved in internal policy discussions told Reuters the central bank may act if further increases in the tightly managed currency, especially if they are rapid.<\/p>\n\n\n\n
In light of broad expectations that the yuan will gain again and the dollar will decline further for a long time, the People’s Bank of China (Central Bank) acceptance of the currency’s rise contradicts recent market speculation that the bank may take steps to stabilize the high yuan.<\/p>\n\n\n\n
The yuan, which closed at 6.5302 to the dollar on Friday, has gained about 6.6% against the US currency since the beginning of this year, but that is largely explained by the dollar’s depreciation of nearly 6% against a basket of currencies.<\/p>\n\n\n\n
The yuan is on track for its biggest annual gain since rising 6.8% in 2017.<\/p>\n\n\n\n
Some policy advisers believe the yuan may rise to 6.4 per dollar next year, up another 2%. The sources said the authorities may take steps to curb a rapid rise if Chinese exports are affected.<\/p>\n\n\n\n
The People’s Bank of China has taken some technical steps that analysts interpret as a desire to allow some weakness in the yuan but not aimed at effectively devaluing the currency.<\/p>\n\n\n\n
Sources said that the relatively tepid approach to the yuan’s appreciation may indicate efforts by the People’s Bank to give market forces a greater role, as part of longer-term reforms to strengthen the yuan’s position as a global currency.<\/p>\n\n\n\n
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