Beijing cracks down on hot money inflows for bets on yuan appreciation
In a circular to commercial banks the State Administration of Foreign Exchange (SAFE) introduced for the first time a minimum net open position in US dollars, restricting banks' capacity to lend in the greenback.
The mainland's currency regulator has stepped in to restrain corporate borrowing in US dollars and crack down on hot money inflows under the guise of trade as the yuan's appreciation gains momentum.
In a circular to commercial banks the State Administration of Foreign Exchange (SAFE) introduced for the first time a minimum net open position in US dollars, restricting banks' capacity to lend in the greenback.
After a 1 per cent rise by the yuan against the dollar so far this year, many companies have borrowed in US dollars, converted them into yuan and bought into yuan-denominated assets, waiting for the Chinese currency to strengthen further.
The tightening measures also include stricter scrutiny of importers and exporters who channel in money disguised as trade bills. This comes after surprisingly high export figures in the first two months of this year generated suspicion about false trade invoicing.
HSBC economists said in a research note yesterday that the measures "suggest a level of tolerance [by the regulator] over the nature of renminbi appreciation has been breached, following a strong run for the yuan".
The measures suggest a level of tolerance [by the regulator] over the nature of renminbi appreciation has been breached, following a strong run for the yuan
Most of the yuan's gain occurred last month as funds poured in to bet on robust economic growth on the mainland. Interest was further generated after the central bank said Beijing would widen the yuan's daily trading band this year.