The People’s Bank of China decided on September 23 to further tweak the management of the trading prices in the inter-bank foreign exchange market and quotes of foreign exchange designated banks. A spokesperson of the People’s Bank of China explained in detail, on September 25, the five major changes in its policies on the exchange rate of the renminbi (RMB), the Chinese unit of currency. On September 25, Xinua.Net posted the following five points concerning the RMB:
1. Widening the band of RMB exchange rates in the spot market against non-USD currencies (such as the Euro, Yen, HK dollar), from the previous level of ±1.5 percent to ±3 percent.
2. Widening the spread between bid and ask prices. The previous symmetric management of quoted exchange rates based on floatation of ±0.2 percent around the central price (the previous day’s closing price announced by the Central Bank) has been changed to an asymmetric management mode limiting the spread between bid and ask prices to no more than 1 percent of the central price; the spread between bid and ask prices for cash trading has been widened from the previous limit of ±1 percent around the central parity to no more than ± 4 percent; banks can quote different US dollar exchange rates at their own discretion, within the stipulated range of bid-and-ask prices. That is, banks are allowed to quote different prices to their clients, instead of just one price within a business day.
3. Abolishing the restrictions on the spread between bid and ask prices quoted by banks to their clients for non-USD exchange rates. Banks have the discretion to set their bid and ask prices for non-USD currencies against the RMB according to their operating costs and fluctuations in the international market.
4. Expanding the range of price negotiation, allowing banks and major clients to negotiate─not merely limited to single transactions of huge volume.
5. Strengthening the supervision of exchange quotations. Banks are required to strengthen the system of managing exchange quotations, as well as unifying the management in their branches and sub-branches. Banks are also required to report by 9 a.m. each day to the State Administration of Foreign Exchange (SAFE) their major currency quotes, including opening, high, low, and closing prices for the previous day, as well as opening price for the day. At the same time, every level of the SAFE is required to strengthen the supervision and management to maintain the order of the currency market.
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