Barclays predicts a set of policy initiatives by the Chinese authorities to liberalize the movement and trading of the renminbi, heralding full liberalization of the country’s capital account by 2015, according to Asiamoney.
It is widely agreed that greater currency flexibility is a pre-condition for further opening up of Chinas capital account, wrote Barclays in a report on April 20. While opinions differ on the pace and sequence of the liberalization, and the International Monetary Fund last year officially gave the nod to capital controls by developing economies, there is little doubt that this is an inevitable process of a countrys economic and financial market development.
China may achieve basic convertibility of the capital account around 2015, meaning most restrictions on cross-border capital flows, except for a small number of areas such as portfolio investment, will be removed.
Meanwhile, after the widening of the trading band, Barclays expects greater volatility in the US dollar-Chinese renminbi rate but remains positive on renminbi appreciation for this year and beyond.
Two-way fluctuations mean the currency could depreciate against the US dollar relatively easily, if Chinas growth and financial risks point in such a direction or US dollar cross-rates rebounded sharply, the report said.
For the full year 2012, we maintain our 2% appreciation forecast for the renminbi versus the US dollar, and expect it to happen in H2 [second half of 2012], as export growth recovers, capital inflows increase and the US election enters its final stage. In the medium to long run, we remain optimistic on the renminbis outlook.
The move to allow a greater trading range for the renminbi might also mean there will be less need for the Peoples Bank of China to intervene in the currency market, which should restore monetary policy independence and promote a more effective domestic policy.
This article was first published by EuromoneyFXNews.