Across The Border | Why the PBOC has changed the way it computes the yuan’s daily midpoint
Analysts present the arguments, but could this be a first step made towards a ‘clean float’ of the national currency?
China tweaked its formula for setting the yuan’s daily reference mid price on Monday, a move read by many as a technical adjustment that brings the mid price setting closer to the market, while some suggested it could be a first step made towards a free float of the national currency.
The People’s Bank of China uses the mid price to guide the daily fixing of the yuan’s exchange rate against the US dollar, based on its previous closing price against the US dollar, and the movement of a trade-weighted basket of currencies.
The PBOC allows the exchange rate to rise or fall up to 2 per cent from the official midpoint on a daily basis.
Monday’s adjustment by the operator of the foreign exchange trading platform shortens the reference period for those currencies.
The China Foreign Exchange Trade System (CFETS) is believed to have said on Monday the reference period of yuan trading against basket currencies had been reduced to 15 hours from 24 hours.
[It] could be viewed as a friendly gesture to the Trump administration and an effort to avoid a potential trade war between China and the US
The new reference period now is from 4.30pm to 7.30am in Beijing (3.30am to 6.30pm EST).