After China's central bank (PBOC) announced new measures on Tuesday to improve the exchange rate formation system for yuan, the Chinese currency witnessed a nearly 2-percent decline in its exchange rate against the U.S. dollar, its largest single-day drop in a decade.

 

The move has sent jitters through global financial markets and among investors, and prompted discussion if the Chinese currency would continue to lose value against the dollar in the months to come. Here are answers to some of the questions one may most want to know regarding China's latest move on currency exchange rate.

 

Q: What exactly did China do?

 

A: PBOC's Tuesday move allows market forces more influence in determining the yuan's value and the policy itself is not aimmed at pushing for yuan's depreciation.

Effective on Tuesday, daily central parity quotes reported to the China Foreign Exchange Trade System before the market opens should be based on the closing rate of the inter-bank foreign exchange rate market on the previous day, supply and demand in the market, and price movement of major currencies.

 

Q: Why did yuan depreciate sharply after the announcement of the new policy?

 

A: The PBOC said the RMB's central parity has deviated from its actual market rate by "a large extent and for a long duration," and the sharp drop Tuesday was a "one-off" adjustment that has bridged the previously accumulated differences between the central parity rate and the market rate.

 

Q: What are some of the most notable impacts of the policy for China?

 

A: Yuan's depreciation will give considerable boost to Chinese exporters since it makes Chinese products cheaper on the global market. However, it may also dent the country's prosperous outbound tourism businesses as foreign travels become more expensive.

(Xinhua)