“This move is consistent with its recent measures to fast open China’s capital account. As China experiences two-way capital flows, the renminbi’s volatility will naturally increase. Allowing a flexible exchange rate will enhance PBOC’s monetary policy independence and make its policy more effective.
‘‘Now Chinese residents, firms, and FIs will have to live with a more volatile renminbi exchange rate and start to use hedging instruments. As such, Chinese commercial banks will have a new source of revenue. Indeed, this move is an important step to help improve the onshore renminbi market efficiency.”
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