It also said this is the closing price of the day trade, which seems to be a bit different from my previous interpretation of basket peg recalculation. PBC seems to be monitoring the basket peg in real time, and announce the closing price at the evening, which is some number (based on market trading) within the gap and the recalibrated central parity (in real time)
-- (But more data points needed to understand what they are trying to do)
However, something strange in these numbers
The implied cross XR are:
Market value at yahoo (10am GMT) shows:
Looks normal, except for the EUR, where the cross rate discrepancy seems larger than normal gap in transaction cost (and wider than 0.3%).
Maybe evidence of asymmetric intervention in USD vs EUR. Wide enough gap for arbitrage. Hard to arbitrage in a capital controlled market. But this may be practiced. If I am a MNC CFO, I have cash in EUR and USD and I need to pay my supplier in RMB, I will definitely use my EUR account to pay for the bill, as it converts to more RMB. Furthermore, if I can convert my USD into EUR with a ask/bid spread less than 2%, I would even convert my USD into EUR before going to PBC.
Now why does PBC allow for such discrepancy?
1) A mistake (looks like the EUR number is from July 20), or a deliberate act to confuse speculators
2) They want more EUR. The current EUR holding falls short of the target weight in their basket. Therefore, instead of buying EUR with their USD in the open market, PBC decided to use the RMB trading board to guide a drift in EUR. By creating a better price for EUR/RMB (effectively depreciated RMB vs EUR), they hope to attract more EUR into their currency board.
- We can also understand this from another angle. If the basket is 70% USD 30% EUR, they want to sell 8,11RMB for USD0.70 and EUR0.30/1.21. On July 22, more people comes in with USD than EUR (compared to the target mix), so they let EUR/RMB drift away from the target central parity for more than 0.3%, or we could say they recalculated the central parity and allowed it to drift there. Nevertheless, this is an unstable/transitional position as the implied USD/EUR rate is too far away from that in international market.