BOA’s Lu Ting Says Widening Yuan Band Is Step to New FX Regime
Lu Ting, an economist at Bank of America Corp., comments on the widening of the yuan’s trading band by the People’s Bank of China.
“Widening the band to 1% is an important step towards a rule-based FX regime with a trade-weighted basket as the new anchor.” The People’s Bank is under pressure to build such a regime to avoid having to again peg the yuan to the dollar once it views the currency as no longer undervalued, Lu said.
The intermediate goal is to “benchmark” the yuan against a trade-weighted basket, Lu said. “A true rule-based basket currency regime will unavoidably lead to two-way volatility” so the central bank should “seize all opportunities” to increase yuan-dollar volatility, he said.
“China will avoid significant appreciation or depreciation this year due to uncertain global environment and the need for stability during the year of leadership change.”
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