On Monday, the People’s Bank of China will raise the foreign exchange risk reserve ratio for financial institutions when buying currency forwards from 0% to 20%, Caixin reports, in a move aimed at slowing the yuan’s continued slide.
In a public statement, the central bank sad that the measure aims to “prevent macro financial risks and help financial institutions operate in a healthy and stable manner,” after economic threats such as US-China trade tensions had made foreign exchange markets “volatile”.
Under the new policy, financial institutions must deposit 20% of the value of their yuan forwards from the previous month in a holding account with the People’s Bank for one year. A currency forward is a security that buys or sells a currency at a specific price on a future date to enable hedging against price swings.
The policy was first used in October 2015 after the yuan plummeted following a decision by the central bank to change how the currency’s daily parity rate was established, but was withdrawn in September of last year when the yuan stabilised.
You must log in to post a comment.
Yes, I would like to receive emails from China Economic Review. (You can unsubscribe anytime)
Copyright © 2018 SinoMedia Group Limited All rights reserved