VIEW OF THE DAY

飞雪寒冰

Easing tensions between the US and China could herald a near-term shift by Beijing on its renminbi policy, says Vishnu Varathan, regional market analyst, Asia, at 4Cast.

“Recent comments from Beijing on the scope for currency flexibility are not inconsistent with a Singapore-style managed float mechanism that regulates the renminbi against a basket of currencies. The trading band will probably show greater ‘flexibility',” he says.

“Another crucial element will be an inherent appreciation bias in the form of an upward nominal effective exchange rate slope that could be manipulated according to the stage of economic recovery, enabling a more enduring implementation of this FX mechanism.”

飞雪寒冰

Mr Varathan notes that the People's Bank of China is believed to be thinking of allowing the renminbi to trade against the Russian rouble, the Korean won and the Malaysian ringgit – at present it trades against the US dollar, euro, yen, sterling and Hong Kong dollar. “This would support the gradual internationalisation of the renminbi,” he says.

“Establishing more bilateral transactions may also reduce the build-up of dollar assets and reduce reliance on the greenback.

“With the US softening demands on Beijing for currency flexibility, we think China will be more inclined to move on the renminbi for its own benefits.”