USD/CNY: Trading the US Dollar / Chinese Yuan

USD/CNY: Trading the US Dollar / Chinese Yuan

The People’s Bank of China known as PBC or PBOC (or, in Chinese, Zhongguo Renmin Yinhang) and it is the body that operates as  the central bank of the People’s Republic of China. This central bank usually supervises monetary policy and regulates financial institutions in mainland China, and it has financial assets greater than any single private institution in the country.  The central bank offers the Chinese Yuan as the country’s currency, and forex traders can implement forex strategies more accurately using CorrecTrade as a strategic forex trading bot.

The People’s Bank of China announced that it was seeking to increase the use of the renminbi as a reserve currency for central banks and governments around the world, and wanted to improve the currency’s “infrastructure” and expand its role in financing cross-border investment and trade. An overview of Chinese economy is given below:

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From a liquidity management perspective, China is a highly-regulated market with direct influence over interest rates governed by People’s Bank of China.  In the chart below, we can recent interest rate changes in China as follows:

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China recently pledged to lift the renminbi’s position in the international economy and the PBC said it wanted to increase the currency’s use as a reserve currency for central banks and governments.

The PBOC made its policy intentions clear by reducing the one-year bank lending rate by 25 basis points, which now brings the level all the way down to 4.35 percent.  At the same time, the one-year deposit rate is now reduced by 25 basis points, which brings the number down to 1.50 percent.

Reserve Requirement Ratio

The reserve requirement ratio (RRR) is another forex factor that was reduced by 50 basis points, which now brings the ratio down to 17.5 percent for the lenders that are making the largest transactions. Conversely, banks that lend to agricultural firms and smaller companies will now be privileged to another 50-basis-point decrease to the overall RRR.

Now, the question is how effective have the interest cut & RRR cuts actually been?

The cuts are not entirely surprising, as they came in the same week as much more negative third-quarter showed that the Chinese economy is missing its plans in achieving growth target of 7 percent. But the PBC expected that the frequent cuts in interest rates and RRR would add liquidity in financial systems and that these initiatives would depreciate the Chinese Yuan. The PBC included that it wanted the Renminbi to play a bigger role in cross-border investment and trade.

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