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Extended trading hours seek to boost yuan’s global standing

Trading hours for China's currency, the yuan, have been extended for an extra seven hours as of Monday 4 January, amid global panic at share losses and weak renminbi.

Just how important the Chinese yuan is to global economies was highlighted on Monday as the values for both onshore and offshore yuan fell to a four-year low. This coincided with a fall in Chinese shares, in turn caused by poor manufacturing growth in China. Uncertainty regarding China's economy is undermining any sort of recovery in Western markets. But China is set on establishing its currency alongside the dollar, euro and pound and its latest moves seeks to increase the trade window between China and Europe.

The new trading times are from 9.30am to 11.30pm (the previous closing time was 4.30pm local time).

Global currency

This is the latest move by the Chinese government to boost the renminbi's importance as a global trading currency, with the new longer hours overlapping with trading in Europe. It is also part of its programme to converge China's onshore and offshore yuan trading rates.

Other measures have included a substantial package of financial reforms and the recent inclusion of the renminbi in the International Monetary Fund's basket of global reserve currencies last November

China also launched a trade-weighted renminbi index, which is a first step to possibly unpegging China's currency from the US dollar and aligning it with a basket of currencies.

Extended hours will have limited effect

However, the extended trading hours are not expected to have a large impact on demand for onshore yuan (CNY) and FX strategists expect traders in Mainland China to continue to dominate the market and to conduct the bulk of trading before 4.30pm (the central bank will continue to base its closing level on the rate at that time). Foreign traders will continue to be limited to trading in offshore yuan (CNH).

Nizam Idris, Macquarie's head of strategy, fixed income and currencies, told CNBC: “This new system essentially allows more of the status-quo. It doesn't change the fact that the CNY remains inaccessible to the bulk of foreign players excluding offshore central banks.”

Closing the gap

The difference between the onshore and offshore rates has widened considerably recently, leaving the People's Bank of China (PBOC) concerned that arbitrage trading would affect the yuan's volatility. The PBOC is thought to have intervened last week to prevent some foreign banks from making a profit from the difference in the two rates. 

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