China's yuan rises on stronger midpoint fix, reforms

[SHANGHAI] China's yuan firmed against the dollar on Thursday after the central bank set a firmer midpoint and launched a worldwide payments system to encourage more trade settlement and investment dominated in the yuan, among other reforms.

"The yuan was boosted in line with the midpoint and partly due to the new reforms, including that on payments system," said a trader at a foreign bank in Shanghai.

"But trading was thin as not all investors and traders have been back into the market after the long holiday." The People's Bank of China set the midpoint rate at 6.3505 per dollar prior to the market open, 0.17 per cent firmer than the previous fix of 6.3613 on Sept 30.

China's markets reopened on Thursday after the week-long long National holiday.

The spot market opened at 6.3508 per dollar and was changing hands at 6.3514 at midday, 0.09 per cent firmer than the previous close.

The PBOC on Thursday launched the China International Payment System (CIPs), a worldwide payments system for the yuan to encourage greater use of the yuan in trade settlements and investment.

In another reform, China on Wednesday subscribed to the International Monetary Fund's Special Data Dissemination Standard (SDDS), marking a major step forward for official statistics in the country.

Data on Wednesday showed China's foreign exchange reserves posted their biggest quarterly decline on record in July-September, as the central bank stepped up intervention to stabilise the yuan and calm sentiment after an unexpected devaluation of its currency had jolted global markets.

Analysts said the figures pointed to continued capital outflows on expectations of further economic weakness and more interest rate easing. But they added that the pace of the flows, while still substantial, had appeared to slow.

China's reserves, the world's largest, dropped US$43.3 billion to US$3.514 trillion last month, central bank data showed on Wednesday, and were down by about $180 billion in the third quarter in their largest ever quarterly fall, according to Reuters data going back to 1980.

The offshore yuan was trading at 6.3515 per dollar, almost synchronous with the onshore yuan.

"We think the PBOC's objective is to restore a pre-devaluation degree of convergence between the onshore and offshore forward curves," Tim Condon, head of Asia research at ING, said in a note.

"We think the PBOC will see the smaller decline in foreign exchange reserves in September as vindicating its strategy."

REUTERS