China begins yuan trade against Malaysian ringgit in local market, widening scope for currency

China begins yuan trade against Malaysian ringgit

SHANGHAI — China began allowing the Malaysian ringgit to trade against its currency in its domestic foreign exchange market on Thursday — another step toward raising the yuan’s scope in international trading.

As of Thursday morning, the central bank began setting a “central parity rate” for the yuan and ringgit, much as it does for the U.S. dollar and several other major currencies.

The currencies will be allowed to fluctuate by as much as 5 percent daily above and below the parity rate, which was 0.46204 ringgit per yuan on Thursday.

China’s parity rates for foreign exchange are weighted averages of prices — given by banks known as market makers because of their ability to quote both buy and sell rates — excluding highest and lowest offers.

China limits trading of its currency mainly to use in international trade, with market volatility kept in a tight range thanks to daily trading limits. Most of its international trading is done in U.S. dollars.

But Beijing aspires to see the yuan used more widely as an international currency, and to reduce its own exposure to exchange rate volatility stemming from its massive investments in U.S. dollar assets.

Expanding trading to include the ringgit is meant to promote China-Malaysian trade and reduce foreign exchange costs, the China Foreign Exchange Trading Center said in a notice on its Web site.

Allowing broader trading for the yuan is also expected to improve market liquidity, it said.

Apart from the U.S. dollar and ringgit, the yuan also trades against the euro, Japanese yen, Hong Kong dollar and British pound.