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  1. Timeline of China’s steps to stabilise FX market

Timeline of China’s steps to stabilise FX market

China's yuan firmed on Wednesday as banks sold dollars amid elevated borrowing cost in the offshore yuan market in Hong Kong.

By: | Published: September 14, 2016 5:04 PM
China will promote unified yuan exchange rates in the onshore and offshore markets, the country's foreign exchange regulator says, the latest move to help companies better hedge currency risks. (Reuters)

China will promote unified yuan exchange rates in the onshore and offshore markets, the country’s foreign exchange regulator says, the latest move to help companies better hedge currency risks. (Reuters)

China’s yuan firmed on Wednesday as banks sold dollars amid elevated borrowing cost in the offshore yuan market in Hong Kong.

Following is the timeline of Beijing’s market-stabilising measures, reforms and statements.

Sept 14 – The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city’s Treasury Markets Association, is fixed at 8.16167 percent for overnight contracts, the highest level in seven months.

Offshore yuan borrowing rates have been elevated since late last week, and market players have different theories on why. Some say China’s central bank pushed the borrowing rates higher to dampen yuan short-sellers, and others believe it is just due to short-term liquidity concerns.

Sept 12 – Two traders say that state banks – through which the People’s Bank of China (PBOC) occasionally acts to influence the yuan in the foreign exchange market – sells dollars after a weaker official fixing set by the central bank.

However, the PBOC says in an emailed statement that reports it relies upon foreign exchange sales by state-owned banks to stabilise the yuan are “not factual”.

Aug 31 – China’s economic fundamentals remain sound and there is no basis for a long-term depreciation of the yuan, Vice Finance Minister Zhu Guangyao told state television in an interview.

July 18 – China’s yuan slips below the psychologically-important level of 6.7 to the dollar for the first time in more than five years.

In the following two weeks, traders report suspected central bank interventions to defend the Chinese currency at levels firmer than 6.7 per dollar.

July 13 – The central bank is believed to be intervening in the offshore market to ease depreciation pressure on the Chinese currency, traders say, as the market is little fazed by fears of a spike in regional political tensions after an international arbitration court ruled that China has no historic title over the waters of the South China Sea.

June 30 – China’s central bank is willing to let the yuan fall to 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year’s record decline of 4.5 percent, policy sources say.

June 17 – China is looking into possible risks to its foreign exchange reserves as outbound investment has eclipsed foreign investment inflows, a spokesman for the Ministry of Commerce says.

June 15 – China will allow companies across the country more leeway in converting funds raised from overseas debt markets into yuan, the foreign exchange regulator said. The move would promote the yuan’s internationalisation.

May 19 – The first batch of foreign commercial banks have registered to directly trade yuan used for overseas trade settlement, the foreign exchange market operator said, the latest move to open up the country’s forex market.

April 21– China will promote unified yuan exchange rates in the onshore and offshore markets, the country’s foreign exchange regulator says, the latest move to help companies better hedge currency risks.

April 14 – The People’s Bank of China says that foreign central banks investing in the domestic interbank market will be able to freely remit funds without regulatory approval, in a further step to open up its financial markets.

March 31 – Rating agency S&P cuts its outlook for China’s sovereign credit rating to negative from stable, but maintained the rating at AA-, saying the government’s reform agenda is on track but likely to proceed more slowly than expected. The decision piles much pressure on the Chinese currency.

March 24 – China opposes competitive currency depreciation and there should be increased global coordination on foreign exchange policies, central bank governor Zhou Xiaochuan says.

March 22 – China is studying a Tobin tax as a possible policy tool to curb capital outflows, an official at the country’s foreign exchange regulator says, even though he adds that such flows have eased in recent months.

Feb 29 – China’s central bank cuts reserve requirement ratio, or the amount of cash that banks must hold as reserves, by 50 basis points, in a continuation of its monetary easing cycle which will partly help ease yuan depreciation pressure.

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