Chinese central bank’s step into Hong Kong to ‘improve transparency and liquidity’
- The People’s Bank of China’s decision to control the offshore yuan exchange rate through bill sales in Hong Kong is being applauded by traders as helping to improve transparency of central bank efforts to manage market liquidity
The planned bill sale by the People’s Bank of China (PBOC) in Hong Kong next week, the central bank’s first step towards creating a offshore monetary policy, will improve market transparency and help participants gauge the outlook of yuan liquidity conditions, analysts said.
The PBOC will sell 10 billion yuan (US$1.4 billion) each in three-month bills and one-year bills in Hong Kong next Wednesday, paving the way for a more regular bill issuance programme depending on demand.
PBOC bill sales in the city will result in a withdrawal of yuan funds from the banking system, creating a monetary policy tool that will allow the central bank to more easily and cheaply manage offshore yuan liquidity conditions and so control the currency’s exchange rate.
Tighter yuan liquidity would raise the costs for traders borrowing yuan funds to buy dollar-denominated assets. That could force many out of their positions, supporting the value of the yuan.
The yuan jumped 1 per cent in two days to 6.9053 per dollar in early afternoon trade on Friday, moving away from the psychologically important threshold of 7 per dollar that it has not breached since the global financial crisis a decade ago.