Yuan Liberalization Coming Faster Than Expected

If currency liberalization does go “pear shaped,” the ruling Communist Party could not just lose control of China’s money, but also power itself. Self-preservation is a powerful incentive for caution.

This means there is inevitably a tendency to treat reports of China liberalizing the yuan with a heavy pinch of salt. After all we have heard this story before.

Authorities have been promising such action for more than a decade. Each time it resurfaces, the horizon of action is still five or 10 years in the future. But could this time around be different?

Last week, the State Council said it would publish an “operational account” of yuan liberalization. This sounds suspiciously like an implementation plan, although brokers were quick to manage expectations with another five-year timeline.

Yet the potentially far-reaching impact if China unlocks its capital account and allows its citizens to start diversifying deposit accounts into overseas assets means that even incremental changes are worth watching.

MarketWatch

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