The Yuan weakened against the US dollar yesterday, notching its first decline in a month after climbing several days to cap the daily trading band, as the Chinese central bank lowered the reference rate yesterday.

 

The People's Bank of China set the central parity rate of the yuan at 6.2902 per dollar yesterday, 50 basis points below Tuesday's as a risk-aversion sentiment took hold.

 

After staying at the upper limit of the trading band, the yuan closed at 6.2273 yesterday, above the 19-year high of 6.2223 on Tuesday.

 

In a milestone liberalizing move, the PBOC doubled the yuan's daily trading band to 1 percent from 0.5 percent in April this year.

 

Since 2009, the PBOC has introduced various measures to push the internationalization of the Yuan, including making Shanghai one of the on-shore yuan settlement centers. 

 

Andrew Cainey, a senior fellow at Fung Global Institute, said at a Cash, Treasury and Risk Management in China conference held in Shanghai yesterday that the yuan's globalization requires a liberal interest rate and exchange rate regime as well as capital account convertibility. 

 

Tan Yaling, president of China Forex Investment Research Institute, said at the same conference that a sound economy and prudent regulations are needed to support the exchange rate reform.

 

"Without a close regulatory scrutiny or a sound real economy, the Yuan globalisation could reverse what China has accumulated in the past 30 years," said Tan.

 

She cautioned that a slowdown in trade could be a hurdle for the Yuan going internationally. 

 

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