Keeping a tight grip on yuan

China maintains strict controls over its currency and banking system, and the flow of money in and out of the country.

The yuan, also known as the renminbi, is used to execute international transactions and payments.

It has been on an upward track for a decade, trading at 6.1162 to a US dollar on Monday, and allowed to rise or fall 2 per cent of a mid-point set by the People's Bank of China (PBOC) every morning.

This is called the daily fixing. At times, the central bank ignores the daily movement and sets the fixing so that the yuan is stronger against the US dollar a day after the market has indicated it should be weaker.

However, on Tuesday, the Chinese authorities widened the currency trading band to 3 per cent against the US dollar, which means it was allowed to move within a broader range to market forces without the central bank stepping in with daily fixing.

Yesterday, China's central bank set the guidance rate at 6.4010 per US dollar, weaker than the previous fix of 6.3306.

The spot market, where commodities are traded for immediate delivery, traded the yuan at 6.3880 at open, and later, the currency was changing hands at 6.4080 - only 0.1 per cent away from the guidance rate.

A version of this article appeared in the print edition of The Straits Times on August 14, 2015, with the headline 'Keeping a tight grip on yuan'. Print Edition | Subscribe