Time to widen yuan's daily trading band? (2)

"As a result, the time is becoming ripe for further expanding the trading band," according to the academic.

Liu Dongliang, a senior analyst with China Merchants Bank, echoed Cai's view, saying that widening the band is an inevitable step in the country's drive to make the yuan an international currency.

In the long term, the general direction is to abandon the daily trading limit and unify the onshore and offshore trading of the currency, he said.

According to Liu, it is necessary to widen the current 1-percent limit in a progressive manner.

"The country can widen the band first to 1.5 percent or 2 percent, and make further expansions after a while to allow for more extreme market fluctuations," he suggested.

Analysts also point out that it is not enough to simply widen the yuan's trading band, and the central bank should also make efforts to make the formation of the yuan's exchange rate more market-oriented.

"At present, the formation of the currency's exchange rate is not fully marketized, so the rate can neither reflect real market conditions nor serve as an effective policy tool," said Cai.

The country should integrate the expansion of the trading band with reform of the exchange rate mechanism, Liu added.