(Yicai Global) March 11 -- For the first time, according to financial experts, China’s central bank has widened the Chinese yuan’s trading range versus a foreign currency to 10 percent after doubling the band for the Russian ruble.

The yuan’s daily spot trading price versus the ruble will be doubled from 5 percent starting today, the China Foreign Exchange Trade System, a division of the People's Bank of China, said in a statement posted on its website yesterday. The 5 percent range previously applied to all currencies except the US dollar, which trades in a 2 percent band.

The move followed a plunge in the Russian currency amid the conflict in Ukraine. From Feb. 28 to yesterday, it slumped almost 37 percent against the yuan.

The currency pair's rate is calculated based on basic exchange rates such as the ruble versus the US dollar and the euro, according to financial expert Zhao Qingming. Unless the yuan-ruble trading range was adjusted currency arbitrage would arise due to the volatility of the ruble against the dollar and euro, Zhao said. It would also lead to Chinese financial institutions and companies that do business with Russia not being able to transact normally, he added.

The wider band will help absorb the impact of volatility, while stopping investors from making gains based on different rates in different markets, said Guan Tao, global chief economist at BOC International China.

The PBOC’s move is also a response to changes in the financial market, said Tu Yonghong, deputy director of Renmin University of China's monetary institute. Widening the trading range will help market participants anticipate exchange rate volatility and trends so they can use various tools such as derivatives to hedge their forex risk, Tu added.

Trade between China and Russia jumped almost 36 percent to USD146.9 billion in 2021, according to data from Russia’s central bank. More than 17 percent of trade was settled in yuan in the first quarter of 2020, up 2 points from the average level in the previous year.

Editors: Xu Wei, Emmi Laine, Xiao Yi