The move in March by the People’s Bank of China (PBOC) to double the RMB’s daily trading band from 1 percent to 2 percent has coincided with a new era of exchange rate volatility. This year, the long running trend of RMB appreciation has reversed course with it losing 3.4 percent against the dollar since its January high.
At the same time, interest in the RMB has exploded due to its widening use in global markets and a proliferation of offshore currency derivative products. Added into the melting pot is the degree to which the RMB has become a highly popular carry-trade, at a time that markets are still digesting the implications of Fed tapering.
Last year, the RMB entered the list of top 10 most traded currencies for the first time, according to the latest triennial foreign exchange (FX) market survey by the Bank for International Settlements (BIS). This made the RMB the ninth most actively traded currency with a share of 2.2 percent in global FX volumes after volumes trebled from $34 billion (U.S.) per day in April 2010 to $120 billion (U.S.).
Other signs suggest RMB trading momentum is continuing. In February this year, Thompson Reuters reported that the CNH has become the second largest traded FX currency on its relationship trading platform.
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