China Increases Yuan Trading Band

China Increases Yuan Trading Band

In a sop to western policymakers, China recently announced that it would widen the Chinese Yuan’s daily trading band, from .3% to .5%. In theory, this means the Yuan will now be permitted to fluctuate by up to .5% per day against the USD. In practice, however, the Yuan’s daily rate of appreciation probably won’t exceed .05%, and only then on an especially volatile day. Two years ago, China revalued the Yuan and since then, the currency has appreciated at an annualized rate of 3%. However, the west was not mollified, and continued to pressure China relentlessly to allow the Yuan to appreciate further. Unfortunately for the west, this latest policy change is unlikely to have any practical impact on the valuation of the Yuan, as analysts are predicting the currency will appreciate by only another 3% this year. Bloomberg News reports:

The yuan never moved the maximum permitted under the previous limit. It moved 0.13 percent from the daily reference rate on April 16, the most this year, according to Bloomberg data.