The People’s Bank of China (PBOC), the central bank of China, is responsible for setting the daily midpoint reference rate for the Chinese yuan, also known as the renminbi (RMB). The PBOC employs a managed floating exchange rate system, which allows the value of the yuan to fluctuate within a specified range, known as a band, around a central reference rate or midpoint. The current band is set at +/- 2%.
The PBOC’s daily reference rate is used as a benchmark for the day’s trading in the foreign exchange market. It is announced around 0115 GMT each morning and is based on the previous day’s closing price, as well as other factors such as market demand and supply.
Once the reference rate is set, the yuan is allowed to trade within the specified band. If the yuan’s value moves outside of the band, the PBOC may intervene in the market to stabilize the currency.
The PBOC’s managed floating exchange rate system is designed to provide stability to the Chinese economy while allowing for some flexibility in the value of the yuan. It is a key tool that the PBOC uses to manage the country’s foreign exchange reserves and to maintain financial stability.
