China is going to weaken the binding of the yuan to the dollar

China is going to weaken the binding of the yuan to the dollar

Moscow. December 14. The people’s Bank of China (PBC, the Central Bank of the country) signaled the intention to change the regulation of the yuan at the expense of weakening its peg to the US dollar, writes the newspaper the Wall Street Journal.

According to an article published on the website of the NBK, the Central Bank would like to see the Renminbi account of the basket of currencies of major trading partners of the PRC instead of binding exclusively to the dollar. The basket of currencies may include the US dollar, the Euro, the yen, and 10 other currencies.

Exchange rates are a reflection of trade and investment relations with many countries, and the market should take into account the fluctuations of the yuan relative to a basket of currencies, the article says.

Still unknown, will depart China from binding national currency to the dollar in favor of a basket of currencies and, if out of range, when it will happen. However, this change will lead to serious consequences in the currency markets, in particular, will reduce the demand for dollars, experts say.

The transition to the binding of the yuan to a basket of currencies also confirmed the desire of Chinese authorities to make its currency global. The orientation of the yuan to a basket of currencies would help to keep the exchange rate “stable at a reasonable equilibrium level,” the article says.

The Central Bank did not disclose additional details about the timing of changing regulation yuan, writes the WSJ.

In 2005, the Chinese authorities have discussed the binding of the yuan to a basket of currencies, the national currency, however, China still maintains a hard reference to the US dollar.

Currency trading system of China (China Foreign Exchange Trade System CFETS), regulated by the Central Bank, announced the launch of a new index tracking the Renminbi relative to 13 different currencies. The weight of US dollar in the index is 26.4%.

The yuan exchange rate against the US dollar at the auctions on Monday has updated a four-year low, as the NSC were perceived by traders as a signal that the Central Bank stands ready to further weakening of the national currency.

The value of the yuan to the close of the market in Shanghai has decreased on 0,06% – to 6,4591 yuan for $1. During the session, the rate fell to 6,4665 yuan for $1, the lowest level since July 2011.

NSC was downgraded on Monday a reference exchange rate of the yuan on 0,21% – to its lowest in 4 years 6,4495 yuan for $1.

Rate Chinese national currency to the dollar has dropped this year by 3.9%.