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China's central bank is planning to change the way it calculates the yuan's daily fixed rate versus the dollar. The People's Bank of China also noted a new factor that may lower the blow of significant market swings, according to sources.
Under the new formula disseminated to lenders by China's monetary authority this week, institutions that give quotes for the daily reference rate will also take into consideration the prior day's official closing level, developments in baskets of currencies, and a new counter-cyclical factor, sources said. Banks are now making changes and are testing their models and will begin giving quotes using the new standard system.
The change in calculation is seen to reduce yuan volatility and lower the role of market forces in setting the exchange rate, according to analyst. China's eyes this year are set on stabilizing the yuan as authorities battle capital outflows and stem financial risks ahead of a crucial leadership shake up by the end of the year.
Analysts said that the central bank's actions reflect an impression that they are more concerned regarding yuan stability than what they indicate in their public remarks.
