The PBOC USD/CNY reference rate is set to be around 0115 GMT.
The People’s Bank of China (PBOC), China’s central bank, is responsible for setting the daily midpoint for the Yuan (also known as the RMB or RMB). The People’s Bank of China (PBOC) follows a managed floating exchange rate system which allows the value of the yuan to fluctuate within a certain range, called a “range”, around a central reference rate, or “midpoint”. It’s currently +/- 2% and some think it could expand to 3% this year. The governor of the People’s Bank of China (PBOC) over the weekend highlighted the trend towards more foreign exchange liberalization.
How does the process work:
- Daily midpoint setting: Every morning the People’s Bank of China (PBOC) sets a midpoint for the yuan against a basket of currencies, primarily the US dollar. The central bank takes into account factors such as market supply and demand, economic indicators, and fluctuations in the international currency market. The midpoint acts as the reference point for that day’s trading.
- Trading range: The People’s Bank of China (PBOC) allows the yuan to move within a range around the midpoint. The trading range is set at +/- 2%, which means that the yuan can rise or fall by a maximum of 2% from the midpoint during a single trading day. This range is subject to change by the People’s Bank of China (PBOC) based on economic conditions and policy goals.
- Intervention: If the value of the yuan approaches the limits of the trading range or experiences excessive volatility, the People’s Bank of China (PBOC) may intervene in the foreign exchange market by buying or selling the yuan to stabilize its value. This helps maintain a gradual and disciplined adjustment to the currency’s value.
Note that the People’s Bank of China’s management of the yuan’s exchange rate has been a source of controversy, with some arguing that the central bank devalues the currency to gain a trade advantage. However, in recent years, China has been moving towards a more market-oriented exchange rate regime and has allowed greater flexibility in the value of the yuan.
