SHANGHAI (Interfax-China) -- The People's Bank of China (BOC), China's central bank, late Friday increased the trading range for Chinese currency the renminbi (yuan or RMB) against non-dollar forex to 3% from the previous 1.5%.
The bank said the move is part of China's effort to make its currency regime more flexible.
"The reform is for further developing China's forex market, improving Chinese banks' flexibility in currency management as well as to satisfy local enterprises' needs to hedge against currency risk," BOC said in a brief statement posted as the country's currency market just ceased trading.
In the same statement, BOC also permitted banks to set their own bid/ask spreads in trading of the RMB when dealing with customers. It at the meantime it widened the bid/ask spread banks are allowed to quote in USD terms in deals for clients.
Some analysts reacted coldly to the sudden policy, saying it is likely political reasons are driving the change.
"The new move does not make much difference, but might serve to ease Sino-US relations," Xu, an analyst from a Shanghai-based finance consultancy told Interfax. "People cannot help connecting the policy move to political criticism over China's too strictly controlled currency regime, and the timing of the move was just hours ahead of Chinese top financials attending the G7 meeting in the USA", Xu added.
On July 21, China allowed the Chinese RMB to increase by 2.1%, to RMB 8.11 to USD 1, and let RMB float with a basket of currencies including the dollar, euro, Japanese yen and Korean won, instead of just being solely pegged to the dollar as in the past decade. Some western countries have said the peg artificially undervalued the RMB by as much as 40%, making China's exports cheaper on world markets. In response, Beijing pledged to gradually adopt a more market-oriented currency regime.
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