Chinese Authorities Widen Yuan Trading Band, But Government Control Still Omnipresent

Strictly controlled but much coveted Chinese yuan has been allowed a daily trading band of 2% by People’s Bank of China

With the entire retail FX industry concentrating a sizable effort on attempts to acquire Chinese clients as well as investigate methods of providing yuan trading facilities against other pairs, a glimmer of hope has arisen in the shape of a step having been taken by the Chinese government toward a reducing the daily trading limits previously imposed on the national currency.

In a report on Saturday by the Wall Street Journal, The People’s Bank of China, China’s government-owned central bank, sets a daily rate for the yuan against the U.S. dollar, which is called the parity rate.

China until now had allowed investors to push the yuan’s value 1% in either direction from that rate in daily trading. On Saturday, the central bank said it has decided to widen that trading band, allowing the currency to move up or down by 2% daily.

The yuan has already gone from being one of the most attractive emerging-market carry trades to one of the worst by the end of February, according to Bloomberg. Indeed, analysts at Societe Generale had noted that the yuan rose nearly 3% against the dollar +0.59% and 7% in nominal effective exchange-rate terms in 2013.

The Chinese communist government still maintains extremely strict control over the mainland’s sovereign currency, however, including stringent capital movement controls making it difficult for business to be conducted overseas and limiting the flow of the yuan from the Chinese mainland, leaving the overseas Hong Kong-based yuan as the only viable option for most traders.

However, with the slight adjustment in the daily limit, a steadily improving willingness for China to view its currency on the world stage is emerging whilst bearing in mind the responsibility to social stability by ensuring that a large influx of overseas funds does not generate an unsustainable rise in prices for property and assets.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.


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