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China

China Foreign Exchange Committee tells banks to limit speculative trading as yuan surges

  • The currency has reached a 6-year high and is the best performer in emerging markets this year
  • Lenders have been told to be risk neutral when making foreign exchange trades, sources say

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The instruction may be a sign that Beijing is worried about the yuan’s rapid ascent. Photo: Bloomberg
Bloomberg
An organisation formed by key participants in China’s currency market urged banks to limit speculative foreign-exchange trading after the yuan climbed to a six-year high versus peers.

The China Foreign Exchange Committee (CFEC)– founded under guidance from the central bank – encouraged lenders to be risk-neutral when trading foreign exchange for themselves and for clients, according to people familiar with the matter.

Banks were advised to better track their proprietary trading and improve risk management, the people said, citing a proposal made by core members of the organisation that was circulated to members.

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The move could be the latest sign that Beijing has grown uncomfortable with a rapid ascent in the yuan. The currency is the best performer in emerging markets this year as it benefits from robust exports and foreign investments in onshore bonds. Against a basket of trading partners, the yuan last week soared to the highest level since 2015, when the authorities devalued the currency to aid growth.

The CFEC suggests banks conduct internal reviews when trading volumes at proprietary desks deviate significantly from the norm, the people said, asking not to be identified as the matter is private.

Proprietary trading that is 50 per cent higher than the level during the year-earlier quarter, or is more than 15 times the size of transactions done on behalf of clients could be considered abnormal, they said. Banks need to report their findings to the CFEC.

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