China adjusted the fluctuation rate of its currency, the Renminbi, so it fluctuates more with the US Dollar.
The People’s Bank of China announced on April 16 that the Rmb will be allowed to fluctuate up to one percent of the US dollar’s daily official rate, double the current fluctuation limit of 0.5 percent of the dollar’s daily official rate. The daily trading rate is important because it signals how much a currency’s value is allowed to fluctuate from a predetermined limit set each day by the currency’s respective central bank.
Financial analysts say that the bank’s decision signals greater volatility in the Rmb’s value against the US dollar. The Rmb’s value weakened last year after China experienced a trade surplus and saw its capital growth decrease.
Representatives from HSBC told the Financial Times that the move was “symbolic in recognizing the increased fundamental two-way volatility of flows (as a change from the past where appreciation pressure was persistent and large), and as a signal that the [exchange rate] regime is evolving to become more flexible in-line with these changes.”
The Rmb hit its current limit of 0.5 only a few times since its last daily trading rate adjustment back in 2007. Most of those instances occurred near the end of last year.