More Volatility For Yuan As Floating Band Widens

The yuan’s trading band will be widened “in the near future,” said Yi Gang, deputy governor of the People’s Bank of China, after the currency rallied yesterday to a 19-year high.

“The exchange rate is going to be more market-oriented,” Yi said at an International Monetary Fund conference in Washington yesterday. “Last year they increased the floating band from 0.5 percent to 1 percent. I think in the near future they’re going to increase the floating band even further.”China may come under pressure to quicken appreciation of the yuan from members of the Group of 20 nations and the International Monetary Fund meeting in Washington this week. A U.S. Treasury Department report last week called the currency “significantly undervalued,” and asked Japan to refrain from devaluing the yen.

The yuan closed yesterday at a 19-year high of 6.1723 per dollar in Shanghai, the upper limit of a trading range that spans 1 percent either side of the central bank’s daily reference rate. The fixing was cut 0.12 percent today to 6.2416, the biggest decline since August and forcing a weakening of the currency. The spot rate slid 0.13 percent to 6.1805 as of 11:16 a.m. local time, the biggest drop in two months, based on China Foreign Exchange Trade System prices.

Bloomberg

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