Definitions of firms allowed to trade currencies to widen
Beijing plans to allow more non-banking institutions and companies to trade currencies in the mainland's interbank foreign exchange market, the latest step towards liberalising the country's tightly controlled capital markets.
The move, which aims to boost liquidity in the currency market, will allow companies trading large volumes of foreign currency to bypass traditional conversion fees and secure funds at a better rate.
'We will lower the entry threshold to increase the number of trading firms in the market,' Bloomberg quoted Wang Xiaoyi, a deputy director of the State Administration of Foreign Exchange (SAFE), as saying in Beijing yesterday.
Only a small number of non-banking companies, such as Sinochem Corp and Sinopec Finance, are members of the China Foreign Exchange Trade System (CFETS), the mainland's onshore currency trading platform.
About 300 member banks use the trade system, a unit of the central bank, to trade the yuan against five key foreign currencies - the US dollar, Japanese yen, Hong Kong dollar, euro and the British pound.
'The change is another small step towards improving market liquidity,' said Ben Simpfendorfer, the head of Asian strategy and a currency specialist at Royal Bank of Scotland.
The mainland's foreign currency exchange market remains relatively undeveloped but a more liquid market is needed to provide cheap foreign currency for the growing number of domestic companies investing offshore.
Last year, the CFETS launched a revamped currency trading platform designed to provide a comprehensive foreign exchange and money markets trading solution for banks.
'This is another slow, gradual move towards developing the mainland's foreign exchange market,' said Callum Henderson, the head of global foreign exchange strategy at Standard Chartered. 'The offshore market is extremely active because of the inefficiency and illiquidity of the market onshore.
'Anything that boosts liquidity is positive.'
Established in 1994, the mainland's interbank currency market has suffered from a number of regulatory teething problems.
Most recently, the mainland's two biggest interbank brokers in February stopped providing quotes for onshore foreign exchange forward contracts and swaps, reportedly after receiving pressure from SAFE to comply more strictly with its rules.
SAFE's latest move was welcomed yesterday by traders, who said it would cut currency conversion costs and marked the next stage in relaxing controls on the mainland's capital markets.
'This will allow companies to convert yuan without paying the normal bank trading fee,' said one currency trader.
Shi Weiyan, a currency trader with Bank of China, said: 'The move is in line with the central bank's principle of further liberalising the country's foreign exchange market.'
Additional reporting by Chen Xumin and Daniel Ren
