China has permitted banks to freely set their own exchange rates for the renminbi against the dollar in over-the-counter transactions — another step toward freeing the exchange rate from government control.
Banks were previously required to price the exchange rate that they offered clients within 3 percent in either direction of the Chinese central bank’s midpoint on a given day.
The liberalization of the market implies that the central bank believes that the renminbi has “now reached equilibrium,” said Cao Yang, an analyst with Shanghai Pudong Development Bank. Such equilibrium permits the central bank to gradually free the currency’s exchange rate without worrying about excessive volatility, he said.
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