Investors Confidence Gaining Efforts as China Give Market a Bigger Role

Investors Confidence Gaining Efforts as China Give Market a Bigger RoleInvestors are gaining confidence in the efforts of China to give markets a greater role in determining the value of the renminbi. The central government is spending less in defending the value of the renminbi in the recent weeks that it did in the days during its slump, as they allow the currency to flow freely across borders.

Last Thursday the yuan rose to its strongest level after its depreciation in August and was traded at 6.3515 per US dollar in the mainland with the quote in line with the daily fixing rate set by the central bank. Currently Chinese banks trade yuan on the foreign exchange spot market at 2 percent above and below the central parity rate against the US dollar and the People’s Bank of China lifted its daily trading bans from 1 percent in March 2014. Economists are now expected the trading band to expand soon to 3 percent after the State Council promised a more flexible exchange rate, plus investors are beginning to believe the renminbi will stabilize soon.

The central bank continues to intervene in the offshore market and the domestic currency forwards markets but not at the same extent it made in August. The China’s Cross Border Interbank Payment System was recently launched in Shanghai, which was designed as an expressway that will facilitate the yuan’s use in the international trade and investment. The cross border payment system serves as a global clearing platform for real time settlement in the currency, which connects China to several offshore renminbi centers.

The launch came in time as the central bank announced China adopted International Monetary Fund rules that resulted in prompt availability of the country’s comprehensive statistics reports and will also help improve the quality of the macroeconomic policies. The yuan already overtook the Japanese yen in becoming the world’s fourth biggest payment currency in August, which is 2.79 percent of international payments.

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