China Allows More Options for Yuan
SHANGHAI -- China said it will allow yuan foreign-exchange options to be traded domestically starting in April, a long-awaited move to give companies more hedging ability -- part of Beijing's broader push to build a more sophisticated currency regime.</br></br>Chinese authorities have rolled out a raft of changes in recent months to give businesses more tools to guard against a possible rise in the value of the yuan. The government also is expanding the use of the currency outside China for both trade and investment, steps toward its goal of eventually transforming the yuan -- long traded only inside China -- into a major global currency.</br></br>Ultimately, the recent changes could make it easier for the government to allow faster appreciation of the yuan, which has strengthened 3.6% against the dollar since Beijing unpegged it from the dollar in June -- a far slower rise than the U.S. and other foreign governments want.</br></br>The move comes as the debate between the U.S. and China heats up over whether Beijing's slow policy response on foreign exchange is exacerbating inflation. Treasury Secretary Timothy Geithner said at a Senate hearing on Wednesday he thinks China's policy makers have decided to allow the yuan to rise. He said that, when inflation is factored in, the yuan was strengthening quickly against the dollar.</br></br>"Because their inflation rates are so much higher than ours, it's actually appreciating in real terms against the United States at a rate -- if continued -- roughly 10% a year or more," Mr. Geithner said. "If that were sustained, that would bring about a major shift in the competitive balance in our favor over time, which is necessary and important not just to us but for all of China's trading partners."