China Reduces Currency Controls For Banks

China announced another modest easing Thursday of its currency controls, saying banks will be allowed to set their own exchange rates in dealings with customers.

The change adds to a series of moves aimed at making China’s government-controlled financial system more market-oriented and efficient.

The United States and other countries have criticized Beijing’s controls on the yuan, also called the renminbi. They say the government-set exchange rate is too low, giving Chinese exporters an unfair price advantage and hurting foreign competitors.

Under the rule change, banks allowed to handle foreign currency “can set exchange rates for the renminbi by themselves for customers based on market demand and price-setting ability,” the Chinese foreign currency regulator said in a statement.

Until now, Beijing has set an exchange rate for the yuan each day and then allowed it to fluctuate in a narrow band against the U.S. dollar and other currencies in tightly controlled trading. In March, that band was widened, though to only 2 percent.

Under the latest change, banks that make a profit by buying foreign currencies at one price and selling at another could offer some customers a better deal by narrowing the margin between those two levels. The regulator’s statement gave no indication whether they would be allowed to go outside the state-set trading band or by how much.

via Mainichi

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza