The yuan is now appreciating due to the central bank's reforms. (Photo : Getty Images)
The people's currency rose by 275 points that makes it 6.6255 against the U.S. dollar according to the Chinese Foreign Exchange System on Thursday. This is the largest increase of the yuan in months.
The exchange rate reform that took effect on Aug. 11, 2015, made the currency depreciate because the basis of the rate was based on a basket rate of currencies.
For the first time, the said reforms are producing positive results.
Tan Xiaofen, vice director of the International Finance Research Center at the Beijing-based Central University of Finance and Economics, said that the deviation from the market trading price raised questions on transparency.
He said, "Previously, the spot rate set by the central bank deviated from the market trading price, which raises questions over transparency and authority."
Liu Dongliang, a senior analyst at China Merchants Bank, said that the Chinese government now is learning how to manage the yuan more effectively.
"The new method is anchored to market demand, and will contribute to the stability of the yuan in the long run," he said. "The shift in exchange rate shows that the past 10 years of the yuan's unilateral surge in the exchange market has ended, and the reform has made the currency exchange rate more flexible."
Liu also said that the previous fluctuations with the yuan caused panic with foreign traders but they eventually adjusted to the trend.
The stability of the yuan will eventually bring back consumer confidence, which will likely increase international and domestic spending.
Foreign exchange transactions went down as low as 47 percent from April to May. Total transactions were only $12.5 billion.
The central bank, in its efforts to make the yuan stronger, will now consider market forces in calculating the exchange rate.
Tan observed, "It is likely that the exchange rate reform will further develop, and that the yuan will go up and down, but on a relatively stable level."
