With Republican presidential candidate Mitt Romney vowing to label China a currency manipulator 'on day one' if he's elected and the once-predictable yuan recently becoming more volatile in daily trading, some have inevitably begun to wonder when Beijing might finally set the currency free.
Answer: Not for a long time.
China's central bank, the People's Bank of China, still guides the longer-term moves of the yuan, also known as the renminbi, through a daily rate it sets before foreign-exchange trading starts in the mainland. That rate, called the parity rate, often differs from the yuan's closing level the previous day, reflecting the Chinese central bank's intention for the yuan's direction.
Some Chinese scholars argue that it is necessary for the PBOC to keep its control over the parity rate as a way to keep the exchange rate stable, even though they agree that China needs to have a free-floating currency as part of a broader reform of the country's financial sector.
'The moves to make the renminbi convertible will lead to greater capital flows across borders, which would then lead to big swings in the foreign-exchange rate,' said Ding Zhijie, a professor at University of International Business and Economics in Beijing. 'This kind of fluctuation needs to be avoided through foreign-exchange management because it could destabilize the economy,' Mr. Ding said.
On Friday, the yuan again hit the upper limit of its daily trading band, which allows the currency to rise and fall daily to 1% above or below the parity rate, finishing at 6.2489 to the dollar. So far, the yuan has been back on the appreciation course for about three months, after having weakened consistently against the dollar in the first half of the year.
The yuan's growing volatility could help deflect criticism by the U.S., where the yuan's value has become an issue in the current election campaign. Some have even go so far as to wonder out loud whether Beijing isn't secretly trying to help Mr. Obama in his fight against Mr. Romney by making it seems as if the president has succeeded in pressuring China to let its currency rise.
What triggered the yuan's recent rally is renewed demand from Chinese companies for the local unit, as declines in interest rates in Western countries have led them to exchange the weakening dollar for the stronger yuan.
Some analysts point out that the renminbi market still lacks the depth and liquidity seen in the markets for more freely-traded currencies. As a result, a few trades could lead to a more dramatic rise or fall in the yuan's value.
Zhao Qingming, a currency specialist at China Construction Bank, said the yuan likely will continue appreciating in the near future thanks to China's wider trade surplus. But he cautions that China's still-soft exports would 'forbid the currency from appreciating too fast.' A stronger yuan makes Chinese goods more expensive in dollar terms.
Mr. Zhao predicts that the yuan would rise between 1% and 3% this year. So far in 2012, it has been up 0.7%.
对外经济贸易大学(University of International Business and Economics)教授丁志杰说，人民币可兑换将带来更大的资本跨境流动，然后引起汇率的大幅波动。他说，这种波动有可能破坏经济稳定，需要通过外汇管理来避免。