Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, comments on the widening of the yuan’s trading band by the People’s Bank of China:
“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.”