KimEng Tan

Standard & Poor's looks at the motives behind the PBoC's rate adjustment and reasons that a more flexible exchange rate could help prevent risks to the sovereign credit rating.

Economic conditions are again ripe for renminbi appreciation, but Chinese policymakers will be unwilling to appear to yield to revaluation calls from its trade partners. Thus, only a gentle appreciation or a crawling peg against the dollar are likely in the near term.

Reducing China's exposure to foreign currencies by increasing the use of the renminbi could limit the risks for Chinese traders, investors, and financial institutions, but major hurdles lie ahead.