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The PBOC's must-dos for a renminbi free float

A true free float of China's currency is as far as a decade away, said top forecasters, as the renminbi is still nowhere close to being fully convertible (meaning no capital restrictions and no currency interventions) even as it prepares to enter the IMF's reserves basket on October 1. Even though the IMF decided in November last year that the renminbi was freely usable enough to become a global reserve currency, China's central bank has repeatedly stepped in on FX volatility and retains strict control while simultaneously pledging to increase the market's role. China's renminbi policy is a reflection of the contradictions of China. Here's a currency that is on the brink of entering the IMF's reserves, but it is still tightly controlled as ever. China wants to increase the renminbi's global use, but it doesn't want people to take money out of the nation. A reserve currency is supposed to be freely tradeable, and whether the renminbi fits that bill is is questionable. Global market watchers will be watching to see what happens next, and how much control the People's Bank of China (PBOC) is willing to relinquish. And until then, they say the PBOC's to-do list includes allowing market forces to determine the daily reference rate and intervening less frequently, lifting cross-border capital curbs and permitting a full range of derivatives, including Chinese equities and bonds in global gauges and further opening up to foreign investors. China recently opened up its interbank bond market and private fund industry, expanded QFII trading and investment limits and allowed for smoother FX conversion, but investors may be right—they may still need to wait five to 10 more years until the PBOC can let the renminbi act entirely on its own.

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