The People’s Bank of China (PBOC), China’s central bank, is responsible for setting the daily mean of the yuan (also known as the renminbi or RMB). The PBOC follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a certain range, called a “band”, around a central reference rate or “midpoint”. It is currently at +/- 2%.

How the process works:

• Daily midpoint setting: The PBOC sets a midpoint for the yuan against a basket of currencies, primarily the US dollar, every morning. The central bank takes into account factors such as market supply and demand, economic indicators and fluctuations in the international currency market. The midpoint serves as the reference point for trading that day.
• Trading range: The PBOC allows the yuan to move within a certain range around the midpoint. The trading range is set at +/- 2%, meaning that the yuan could appreciate or depreciate by no more than 2% from the midpoint during a single trading day. This range is subject to change by the PBOC based on economic conditions and policy objectives.
• Intervention: If the value of the yuan approaches the limit of the trading range or experiences excessive volatility, the PBOC may intervene in the foreign exchange market by buying or selling the yuan to stabilize its value. This helps maintain a controlled and gradual adjustment in the value of the currency.

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