Xinhua reported that China’s central bank announced that China will widen the yuan trading band against the U.S. dollar. On every trading day, the yuan is currently allowed to trade 0.5 percent on either side of a midpoint price set by the central bank. The new rules will allow the currency to fluctuate by up to 1.0 percent on either side. The move is expected to lower the possibility of a near-term large scale flow of “hot money.” Experts expressed the belief that the widened trading band is one step closer to a free-floating yuan exchange rate. Over the past 7 years, China has been taking steady steps toward the goal of internationalization of the yuan (RMB), which includes cross-border RMB settlements, RMB direct investments overseas, and supporting the Hong Kong off-shore RMB trading market.
Source: Xinhua, April 14, 2012