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PBOC widens RMB trading band to 1%

Apr. 16, 2012 (China Knowledge) - The People's Bank of China, the country's central bank, announced on the weekend that it would allow investors to trade RMB against the U.S. dollar in the foreign exchange spot market within a 1% range above or below the daily reference point set by the bank beginning from today.

The hike of the trading band is part of the country's effort to accelerate market-based currency exchange rate reform, said the PBOC in a statement published on its website.

The move is also seen as a big step towards a more freely-floated currency. In 2007, China expanded the RMB trading band to 0.5% from the previous 0.3%.

Slowing Chinese exports and narrowing trade surplus indicated that the Chinese currency may no longer be as undervalued against the U.S. dollar as it was, said some analysts, warning that Chinese exporters, importers and banks will face larger foreign exchange trading risks.

Chinese Premier Wen Jiabao said last month at a press conference that the real effective exchange rate of RMB had reached its equilibrious level after appreciating by 30% since 2005 when China launched the exchange rate reform.

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