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Liberalisation puts Chinese yuan closer to free float

CHINA'S financial markets are fascinating to watch these days. Efforts by officials to decrease the nation's enormous debt pile without destabilising domestic markets are having profound consequences, most visibly in the bond market, where the yields on short-term debt have risen above those on longer maturities for the first time.

The implications are more than just academic - they will likely pressure China to allow the yuan to become a free-floating currency sooner rather than later.

Market historians know that an inverted yield curve generally means tougher economic times ahead and the potential for capital flight. Presumably, the Chinese know this as well, which is why it has embarked on a...

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