Central Bank Doubles the Value of the Yuan Trading Band

Central Bank Doubles the Value of the Yuan Trading BandLast Saturday the central bank has loosen its hold on the yuan by doubling the daily trading range of the currency, which added more bite to its promise to allow market forces to play a much greater role in the economy and the market. The People’s Bank of China stated that the exchange rate allows a rise or fall of 2 percent from a daily midpoint rate that is set each morning which starts today.

A lot of participants viewed the yuan as a one way appreciation bet in which authorities are working on trying to change it by demonstrating of what is now is said to be a genuine market that can be up or down just like any other market. The People’s Bank of China will still continue to increase a two way flexibility of the exchange rate and will keep the exchange rate stable and within reasonable and balanced level. Also a spokesperson from the bank stated that the new flexibility will increase the decisive role and improve the efficiency of the market in allocating resources.

By widening the band which was expected when the yuan fell in value in mid February until early March had traders think that the central bank is working with state banks to push the currency down and force speculations on the appreciation. They wanted to leave the market more balanced between the buyer and seller and hoped to reduce the chances of a dramatic move once the trading band is widened.

The clamped down came after the central bank has guided the yuan to increase 2.9 percent against the dollar in 2013, but so far has outperformed other emerging currencies and markets.

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