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Analysis: The Significance Of Widening The Trading Range Of RMB
< p > what can people expect from the expansion of the trading range? The Yuan's record in the past two years provides a cautionary tale. While this reflects China's eventual desire to allow the yuan to be freely convertible, it is not just a broader trading range to achieve that desire: traders and analysts say the central bank will have to abandon its daily exchange rate management, which is the step China's central bank has so far been reluctant to take. < /p >
At P glance, the latest reform seems to be a huge step. The central bank said that the trading price of the RMB against the US dollar could fluctuate within 2% of the daily RMB price against the US dollar. The new trading range will take effect from Monday (March 17th). < /p >
Free floating and unbound currencies (such as euro or yen) rarely rise or fall by more than 1% in one day compared with the US dollar. Theoretically, expanding the daily trading range of RMB to 2% should be equivalent to allowing it to float freely. But the lesson of the past two years is that the trading range plays a significant secondary role in determining the value of the renminbi compared to the central parity set by the central bank in the morning. < /p >
< p > "we do not think that China's a href=" //www.sjfzxm.com/news/index_cj.asp "> foreign exchange market < /a > will change greatly at the daily level," said Gao Luyi, a Chinese economist at Royal Bank of Scotland (Louis Kuijs). < /p >
< p > in the past month, < a href= "//www.sjfzxm.com/news/index_cj.asp" > RMB < /a > has actually become more difficult to predict, compared with the US dollar, it has fallen by more than 1%. This marked a sudden reversal of the steady appreciation of the renminbi during 2013, forcing businesses and speculators to lift their one-way bet on the continued appreciation of the renminbi. However, it is necessary to realize that the fall of the renminbi is a product of the central bank's own intervention, rather than the market forces that Beijing promised to release. < /p >
< p > < < a href= "//www.sjfzxm.com/news/index_cj.asp > > /a > since 2012 has widened and has not intensified the fluctuation of exchange rate, indicating that simple technical changes will hardly change market behavior," said Liu Ligang, an economist at ANZ bank. < /p >
Most of the time last year, the RMB was facing a strong pressure of appreciation. Its exchange rate often rose to the high end of the 1% daily trading range, but the Central Bank of China resumed the intermediate price to the original level the next day. P As a result, the trend of the RMB exchange rate has a slight upward line, and there is hardly any waves. < /p >
< p > even after widening the trading range, the trend of RMB is easy to fall into the same pattern: the market pushes up its exchange rate, but the central bank keeps its pace by setting the daily average price. < /p >
< p > however, the next few months will be an uncertain period because the Central Bank of China has intervened heavily in recent weeks to depress the RMB exchange rate. This led some analysts to conclude that Beijing is easing monetary policy in order to cushion the slowing economy. < /p >
At P glance, the latest reform seems to be a huge step. The central bank said that the trading price of the RMB against the US dollar could fluctuate within 2% of the daily RMB price against the US dollar. The new trading range will take effect from Monday (March 17th). < /p >
Free floating and unbound currencies (such as euro or yen) rarely rise or fall by more than 1% in one day compared with the US dollar. Theoretically, expanding the daily trading range of RMB to 2% should be equivalent to allowing it to float freely. But the lesson of the past two years is that the trading range plays a significant secondary role in determining the value of the renminbi compared to the central parity set by the central bank in the morning. < /p >
< p > "we do not think that China's a href=" //www.sjfzxm.com/news/index_cj.asp "> foreign exchange market < /a > will change greatly at the daily level," said Gao Luyi, a Chinese economist at Royal Bank of Scotland (Louis Kuijs). < /p >
< p > in the past month, < a href= "//www.sjfzxm.com/news/index_cj.asp" > RMB < /a > has actually become more difficult to predict, compared with the US dollar, it has fallen by more than 1%. This marked a sudden reversal of the steady appreciation of the renminbi during 2013, forcing businesses and speculators to lift their one-way bet on the continued appreciation of the renminbi. However, it is necessary to realize that the fall of the renminbi is a product of the central bank's own intervention, rather than the market forces that Beijing promised to release. < /p >
< p > < < a href= "//www.sjfzxm.com/news/index_cj.asp > > /a > since 2012 has widened and has not intensified the fluctuation of exchange rate, indicating that simple technical changes will hardly change market behavior," said Liu Ligang, an economist at ANZ bank. < /p >
Most of the time last year, the RMB was facing a strong pressure of appreciation. Its exchange rate often rose to the high end of the 1% daily trading range, but the Central Bank of China resumed the intermediate price to the original level the next day. P As a result, the trend of the RMB exchange rate has a slight upward line, and there is hardly any waves. < /p >
< p > even after widening the trading range, the trend of RMB is easy to fall into the same pattern: the market pushes up its exchange rate, but the central bank keeps its pace by setting the daily average price. < /p >
< p > however, the next few months will be an uncertain period because the Central Bank of China has intervened heavily in recent weeks to depress the RMB exchange rate. This led some analysts to conclude that Beijing is easing monetary policy in order to cushion the slowing economy. < /p >
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