China’s central bank will change the way it guides the renminbi exchange rate, a move designed to enhance the government’s ability to prevent renminbi depreciation at a time when authorities are still concerned about capital flight.
The People’s Bank of China permits the US dollar’s value against the renminbi to fluctuate by 2 per cent above or below a so-called “central parity rate” published each morning, also known as the midpoint or fixing. The midpoint is ostensibly formulated by compiling quotes from a group of dealer banks, but the price is understood to be largely determined by the central bank.
Under the revised formula announced on Friday, dealers will incorporate a “counter-cyclical adjustment factor” in their quotes, according to a statement on the website of the China Foreign Exchange Trading System, an industry body controlled by the PBoC.