China loosening yuan controls signals appreciation will endure

China has taken more steps this month to loosen its grip on the yuan than at any time since curbs were imposed in the aftermath of a chaotic devaluation in 2015.
Although the changes were widely interpreted as an attempt to slow the currency’s appreciation, they have been deployed without significantly weakening the yuan or destabilizing global financial markets. Instead, the result has been a steady Chinese currency that remains near a two-year high – potentially emboldening officials looking to push ahead with yuan reform.
A growing consensus among analysts is that the yuan has every reason to stay strong, even if appreciation happens at a slower pace from now.
Paring back control helps liberalize China’s currency market, an important component of Beijing’s long-term plan to encourage greater global usage of the yuan.
Beijing’s campaign to liberalize the yuan stalled after a messy devaluation in August 2015 that triggered a vicious cycle of rapid depreciation and capital flight. The trade war triggered another round of losses from mid-2018, which eventually pushed the yuan to its weakest in more than a decade the following year.
The window for major reforms reopened this month after the yuan completed its best quarterly advance in 12 years, with an interest-rate premium that’s near the widest on record versus the dollar. That has made it more attractive to foreign capital, which is already flowing into China’s bond and equity markets due to multiple index inclusions over the past two years. MDT/Bloomberg