China will lift restrictions on the currency, the People’s Bank of China said on Thursday, a day after its central bank raised its benchmark interest rate to 1.25 percent from 1.20 percent.
China will gradually allow its central banks to issue foreign currency, which will allow the yuan to appreciate.
The country’s benchmark rate is now at 1.1 percent.
The move is expected to boost economic growth and the yuan’s value.
The People’s bank, the official lender to the government, said it would issue its first foreign currency in 2019 and its first floating exchange rate in 2020.
The central bank will also ease restrictions on foreign investment and increase liquidity in foreign exchange reserves.
The yuan, which fell by more than 1 percent against the dollar this year, was up 0.5 percent against other major currencies on Thursday.
It is down 0.4 percent this year and has lost more than 5 percent against foreign currencies since the end of last year.
China has been a major market for the yuan.
It has been gaining in value against the U.S. dollar, Japanese yen, euro and other currencies.
Beijing is considering buying the foreign currency from foreign companies to ease currency controls, but it has not yet made a final decision.
The yuan has lost about 6 percent of its value against other currencies in the past year, according to data compiled by Bloomberg.
“The yuan will be more accessible and be able to be traded with foreign investors,” said Zhou Lixin, head of Chinese stock index monitoring at brokerage CLSA.
China will start to open foreign currency reserves in 2019, the central bank said in a statement.
The first yuan floating rate in 2019 will be 1.5 yuan, while the second will be 2 yuan.
This will allow China to move away from restrictions on trading in foreign currencies and to use the currency for international trade, the bank said.
In June, the Chinese central bank increased the value of its benchmark foreign currency to 3.2 percent from 2 percent and the central-bank’s policy on the yuan will gradually loosen.
By then, it is expected that the yuan could trade with the U, Japanese, Chinese, European and other major markets.
Chinese regulators have been trying to keep the yuan close to international markets, which have led to the yuan being traded on exchanges like China’s Hang Seng Yuan, which has been trading in the $1.05-$1.25 range since March.
Last year, Beijing allowed the yuan index to rise to more than 10 percent, the highest in decades.