China’s global plan for the yuan on track, in step with financial markets opening, bank says

PUBLISHED : Monday, 05 June, 2017, 10:35pm
UPDATED : Monday, 05 June, 2017, 10:39pm

China’s financial markets will continue their gradual pace of opening, a process in lock step with the ongoing internationalisation of the yuan, according to Yue Yi, chief executive officer of Bank of China (Hong Kong).

“Restrictions in cross-border market arbitrage in the offshore yuan markets will pave the way for the next steps of yuan internationalisation as they establish market confidence and stabilise cross border capital flows,” Yue said.

Yue is also the chief editor of the Chinese-language book “RMB SDR Times and Hong Kong Offshore RMB Center”, unveiled at a launch event by publisher Bank of China (Hong Kong) on Monday.

The new belt and road initiative will also provide more opportunities for offshore yuan business and bring international cooperation, Yue said.

Traders believe last week’s sharply higher yuan interbank rate in Hong Kong was engineered by Chinese state-owned banks, acting in line with policy initiatives set out by Beijing. The engineered liquidity squeeze along with last month’s decision by the People’s Bank of China to tweak its mechanism for fixing the daily yuan rate appears aimed at crushing speculators that are bearish on the outlook of the yuan. It was also intended to send out a signal that central authorities will not tolerate a weakening yuan.

However, some analysts said the revised calculation of the yuan fixing rate, by adding a counter-cyclical factor to the formula, is a backward step in China’s yuan internationalisation efforts.

Chief economist at Bank of China Hong Kong, E Zhihuan, said the adjustment shows that authorities have chosen a comparatively better method to manage the currency by increasing it’s responsibility and impact.

Despite volatility the role of the yuan in the international market continues to develop through steps such as the launch of the Hong Kong-China bond connect,

E said.

China is expected to launch the Bond Connect scheme which allows foreigners to buy debt in the mainland shortly.

A formal launch date has not been announced but some financial experts speculate that actual trading will commence on July 1 to mark the 20th anniversary of the handover of Hong Kong.