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Sub-anchor: One year after exchange rate reform

CCTV.com

08-11-2016 16:14 BJT

China's central bank reformed the yuan midpoint rate formation method on August 11, 2015. By today one year has passed and how the new method has been working?

Over the past year, the official guidance rate of the yuan against the dollar has dropped more than 8 percent from 6.2298 to 6.6225. The yuan also devalued against a basket of currencies. The midpoint rate of the yuan against the euro fell 10.3 percent over the past year and dropped 31 percent against the Yen. But it is noteworthy to mention that the midpoint rate of the yuan was up 7.8 percent against the British pound.

Let's check the key dates for volatility. The yuan/dollar rate sharply declined from 6.2298 to 6.4010 just three days after the PBOC began to implement its new midpoint rate formation method on August 11th of last year. The second round of devaluation came later during the Christmas holidays when the official guidance rate declined 1.44 percent in just two weeks. Another round came in May, when the yuan/dollar rate declined from 6.4565 to 6.6971 in two and half months.

There have been several reasons for the yuan's volatilities. They include a capital drain amid China's economic slowdown, a decline in China's foreign reserves, investors rushing to buy American dollars as the US Fed mulls rate hikes, and also expectations for the yuan's inclusion in the IMF's SDR.

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