Yuan market disconnect sparks debate

The spot yuan began hitting consecutive record highs against the dollar in October, peaking on October 31 when it posted its strongest close ever, at 6.2372 per dollar. Since then the People's Bank of China (PBOC) has moved to restrain further

appreciation by fixing the official exchange rate significantly lower than what the market expected. The traded exchange rate is allowed to diverge by 1 percent away from the official midpoint rate in either direction, so by setting an artificially weak midpoint, the PBOC has effectively leashed the yuan.

The PBOC is giving a strong signal that market forces aren't being given much weight at the moment, said Robert Minikin, forex strategist at Standard Chartered in Hong Kong.

For their part, the market forces have refused to respect the midpoint. Over the course of the past two weeks, the intra-day trading chart, which ordinarily resembles a heartbeat, began to resemble brain death: a series of flat lines interrupted by occasional spikes.

Such flattening represents consecutive trades repeatedly occurring at the edge of the trading band.

Until recently this was a rare occurrence, but last week the spot rate stayed more or less glued to the edge of the band, graphically illustrating the failure of central bank attempts to rein in bullish sentiment.

In response, local media - including

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