(Yicai Global) Sept. 13 -- Marketization will be the fundamental direction of the foreign exchange market, the supply and demand-based exchange rate formation mechanism of the yuan will not change, and market participants expect its exchange rate to be more flexible in the future, China Economic Net quoted Lu Lei, vice deputy of the State Administration of Foreign Exchange (SAFE), as saying today during a forum on the yuan and the foreign exchange market.
Specifically, the yuan to dollar central parity rate mechanisms for setting closing rates and adjustments to the basket of currencies should be updated, said Lu.
Ideally, the yuan's exchange rate on the onshore and offshore markets should be relatively uniform, Lu said. If this were achieved, no obvious differences in onshore and offshore prices should exist, and no relevant cross border arbitrage operations would exist, he said.
China is an emerging and shifting financial market. Its rules are not well integrated with the international market due to a lack of openness, so arbitrage is common, Lu said.
If more Chinese financial groups get into the market and more foreign investors come to the country's currency bond and capital markets, such herd behavior may change, he said.