Currency plan suffers in wake of turmoil engulfing the markets

China is in a currency quandary. How will it promote the yuan in global trade while at the same time use it to stabilize stock market volatility?

The People's Bank of China is holding the onshore version of the yuan at about 6.2 to the dollar, even as it pledges a bigger role for market forces. In a recent statement, the government said it would allow the currency to move in a wider range while keeping the exchange rate stable.

A freely usable yuan is a key requirement of the International Monetary Fund's Special Drawing Rights status that China is seeking. Yet loosening controls while stocks are plunging risks the kind of swings that may spur capital outflows and disrupt the world's second-biggest economy.