Tobin Effect: Offshore yuan falls

The offshore yuan was set for the biggest two-day decline in six weeks after China’s central bank reduced the currency’s reference rate and policy makers were seen preparing a levy on foreign-exchange transactions. The People’s Bank of China cut the yuan’s daily fixing by 0.26%, the most since January 7 after a gauge of dollar strength rose 0.4% overnight.

“This will have an adverse impact on market liquidity and development,” said Ken Cheung, a currency strategist at Mizuho Bank in Hong Kong. “Even though long-term investment may not be affected by Tobin tax, it will make investors more cautious about entering the yuan market.” The yuan traded in Hong Kong fell 0.21% to 6.5077 a dollar as of 5:47 pm local time. That takes its two-day retreat to 0.4%, the most since February 2. The onshore currency declined 0.21%.