In its policy move, the government said it would consider the previous day's trading in the establishment of the currency rate, effectively considering the influence of the market. In August 2015, China took a step further by allowing its currency to devalue outside of the previous trading band. Over the past decade, the government has gradually allowed the trading band to widen, starting at +/-0.3% and finally reaching +/-2% by March 2014. In order to tame economic instability, China fixed its exchange rate in 1995 at slightly more than 8 yuan to the United States dollar and maintained that peg until July 2005, when it made a move toward a liberalisation of its currency policy by introducing a narrow trading band. Unlike many of its international trade partners (who allow the values of their currencies to float freely against others), China has a strictly controlled currency policy where it regulates trading activity and tries to control daily movements of the yuan on the forex market. Gradual alterations and an evolution in the country's foreign exchange policies have been central to its attempts to ease into a position as a leading world economy while promoting the yuan as a global reserve currency. As it struggles to evolve from an underdeveloped emerging market to a central player in the global economy, China has experienced growing pains and faced policy decisions that have frequently sent shockwaves through markets around the world. The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.For many investors, China and its economic policies have appeared to be at the epicenter of major shifts in the global economy-shifts with commodities prices and global commerce, stock market fluctuations, and foreign exchange levels.Īs the main engine of trade in the dynamic economy of Asia, China and its currency ( the yuan) have exercised growing roles in that region and across the globe. In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day. The central parity rate of the Chinese currency strengthened 164 pips to 6.4300 against the US dollar on Friday, according to the China Foreign Exchange Trade System. It is important to maintain the basic stability of the exchange rate at a reasonable and balanced level, he added. The PBC will pay attention to the guidance of investor expectations, give full play to the role of exchange rate in adjusting China's macro economy. This system is suitable for China's exchange rate system," said Liu. ![]() "The PBC has improved a managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies. The 2021 exchange rate appreciation is expected to be significantly smaller than that of in 2020. Tang forecast that the yuan's exchange rates will wobble within the range of 6.3 to 6.7, centering around 6.4 to 6.5. "As the yuan's exchange rate appreciation and depreciation factors both exist in 2021, it is expected that the exchange rate will not have a singular trend of appreciation or depreciation," said Tang Jianwei, a senior macroeconomic analyst at the Bank of Communications. UBS sees the Chinese yuan strengthen to 6.35 against the US greenback. ![]() Since the beginning of this year, the yuan's exchange rate has wobbled, while remaining basically stable at a reasonable and balanced level, said Liu Guoqiang, deputy governor of the People's Bank of China (PBC), the central bank.Ĭhina's foreign exchange dynamics are determined by the market, and the yuan's exchange rate is expected to remain stable in the coming months, said Liu.Ĭhinese yuan has strengthened against the US dollar since April mainly thanks to China's strong economic recovery from the COVID-19 pandemic and robust export trend, after the Chinese currency weakened to a four-month low against the US dollar at the end of March. The exchange rate of Chinese yuan with the world's major currencies will continue to hinge on market supply and demand, and current changes within international financial markets indicates that two-way yuan rate fluctuations will become the new norm, a senior Chinese official said on Sunday. ![]() A view of the PBC's headquarters in Beijing Photo: cnsphoto
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