China | China sets new reserve requirement on onshore yuan forward settlement

China sets new reserve requirement on onshore yuan forward settlement

July 6, 2016 8:18 AM (UTC+8)

 

BEIJING (Reuters) – China is implementing requirements for foreign firms to settle foreign exchange forward yuan positions in the onshore market, the country’s foreign exchange trading platform said in a statement on Wednesday.

Foreign firms will need to set aside 20 percent of the previous month’s yuan forwards settlement amount as foreign exchange risk reserves starting on Aug. 15, the China Foreign Exchange Trade System said.

The rule is not new as the reserves have been levied against domestic firms since last year, said Zhou Hao, senior emerging markets economist at Commerzbank AG in Singapore.

“The timing is quite interesting as both CNY and CNH are testing a new high of 6.70,” Zhou wrote in a note following the announcement, referring to the onshore yuan and offshore yuan, respectively.

“Today’s announcement, in my opinion, hints that China’s central bank sees that it is the time to change the trajectory of CNY exchange rate.”

The yuan fell to fresh 5-1/2 year lows against the dollar on Wednesday, extending its slide to a fifth straight session, after the central bank sharply weakened its official guidance rate as the dollar surged.

China’s forex trading platform is operated by the central bank.

(Reporting by Beijing monitoring desk and Elias Glenn; Editing by Richard Borsuk, Robert Birsel)

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