China Should Reform Forex System, Say Bankers

News item about Chinese bank advisers on the forex system:

China should urgently reform its foreign exchange rate system or risk impeding the economy and plans for the yuan to play a larger role on the global stage, a central bank adviser said on Wednesday.

Huang Yiping, a member of the central bank’s monetary policy committee, told a forum in Beijing that an inflexible foreign exchange rate would limit the opening of the economy and yuan internationalization.

Efforts to promote the yuan on the international stage have actually “gone backwards”, in some respects, as a result of inflexibility and efforts to stop capital outflows, he said.

Reforms to the exchange rate system were “a relatively urgent matter”, he said without elaborating.

Officials at the People’s Bank of China reiterated through different channels over the past few months that the country would continue to promote yuan internationalization, which was a long-term strategy.

The yuan is limited to trading within a band of two percent on either side of a midpoint reference rate determined daily by the central bank.

Late last month, the PBOC said it was considering changes to the way it set the midpoint, adding a “counter-cyclical factor” to the formula. It has yet to explain this new element in detail, but analysts and traders think it gives the PBOC more leeway to alter the rate irrespective of market conditions.

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