‘PBoC makes changes to way it manages yuan’

BEIJING: China’s central bank has made a change to the regime used to manage the yuan, effectively removing a component used by banks to calculate their submissions to the currency’s daily reference rate, according to sources.

The People’s Bank of China (PBoC) recently told some lenders that contribute to the reference rate to adjust their use of the “counter-cyclical factor” in such a way that it would have no impact on the mechanism known as the fixing, said the people.

They said the change had already taken effect. The yuan, which fell on the news, is allowed to move a maximum of two per cent either side of the fixing.

China introduced the counter- cyclical factor last year in a bid to reduce volatility in the yuan, which had weakened for three straight years, triggering the introduction of capital controls.

Analysts said it gave the PBoC more control over the currency, but undermined earlier efforts to make the yuan more accessible and market-driven. Greater control over the fixing — along with a steady economy and a retreat in the dollar — helped ignite a rally in the yuan in the second half.

The factor counteracts sentiment-driven volatility in the market and the potential for “herd behaviour,” said China Foreign Exchange Trade System, which falls under the central bank, on its website at the time. Bloomberg