The People’s Bank of China USD/CNY benchmark rate is expected around 01:15 GMT.
The People’s Bank of China (PBOC), China’s central bank, is responsible for setting the daily midpoint of the yuan (also known as the renminbi or RMB). The PBOC follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a certain range, called a “band,” around a central benchmark rate, or “midpoint.” It is currently at +/- 2% and some believe it could widen to 3% this year. The PBOC Governor over the weekend pointed to the trend towards greater foreign exchange liberalisation.
How the process works:
- Daily midpoint setting: Every morning, the 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 serves as a reference point for today’s trading.
- The Trading Band: The PBOC allows the yuan to move within a specified range around the midpoint. The trading band is set at +/-2%, which means that the yuan could appreciate or depreciate by a maximum of 2% from the midpoint in a single trading day. This range is subject to change by the PBOC depending on economic conditions and policy objectives.
- Intervention: If the value of the yuan approaches the limit of the trading band or experiences excessive volatility, the PBOC may intervene in the foreign exchange market by buying or selling the yuan to stabilize its value. This maintains a controlled and gradual adjustment in the value of the currency.
Note that the PBOC’s management of the yuan’s exchange rate has been a source of controversy, with some arguing that the central bank is undervaluing the currency to gain trading advantage. However, in recent years, China has moved towards a more market-oriented exchange rate system and allowed greater flexibility in the value of the yuan.