Perhaps in response to recent pressure from American politicians and the IMF, the Central Bank of China made another push towards floating the Yuan by introducing foreign exchange swaps. Swaps function like futures, by enabling partied to buy and sell currencies at a fixed exchange rate on a fixed date in the future. In this case, the Central Bank has agreed to buy USD one year from now at a rate of 7.85 Yuan/USD. Investors and analysts are speculating that the swaps lend explicit insight into where the Central Bank
believes the Yuan will be in one year. Non-deliverable forward contracts, which indicate collective investor expectations for the future value of the Yuan, are currently priced at 7.78 Yuan/USD. The China Daily reports:
Late Thursday, China’s State Administration for Foreign Exchange announced it would also introduce a new currency trading system allowing interbank market members to trade directly with each other.
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Central bank pushes foreign exchange reform
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