A week after the U.S. Treasury Secretary praised China for its currency stabilizing effort the Bank of China Governor Zhou Xiaochuan has hinted that the bank is moving towards a supply demand model. According to the Vice governor of the PBoC the domestic and offshore markets have started to expect a the Yuan to appreciate and depreciate instead of the continuing appreciation in the last two years.
The trade deficit in the first two months of the year increased due to seasonal factors. China has also hinted at making Yuan denominated loans to emerging economies to boost trade and promote the Yuan. Geithner at the time commented that he does not see that as a threat to the U.S. Dollar, but instead welcomes the move by the Bank of China as it signals the maturity of the currency as it unwinds from very tight controls closer to being priced by market forces.