China goes all out in FX market reform

Last time we saw CNY market liberalization retail volumes out of China picked up more than 30%

Just as London morning trading was kicking off the People’s Bank of China (PBOC) has surprised the markets with a release of a book written by the PBOC Governor Zhou for the third Plenum, which explained in more detail future reforms surrounding the Chinese Yuan and money markets that are going to take place in the future. Governor Zhou has stated that the PBOC will end its regular FX market interventions and will expand the daily trading band for USDCNY.

He went on to communicate that the country will open its capital account, while imposing temporary curbs if needed. In addition current categories which limit domestic and foreign investors’ actions offshore (for the domestic ones) and onshore (for the foreign ones) will be gradually removed.

Interest rates reforms are also on the agenda with Governor Zhou claiming that the PBOC will promote interbank CDs (Certificates of Deposits) and establish a managed floating Yuan exchange rate (just as we suspected in our previous report on offshore Yuan trading). While the timeline of these reforms has not been provided, we are positive that we will be looking at some steps to be undertaken sooner rather than later.

FX brokerages could be in for another volumes pick up as Yuan trading has become a lot more interesting since the last time Chinese authorities increased the daily band in which the Yuan is allowed to float versus the US dollar. We have reported earlier this year, that the same phenomenon has increased awareness of currencies among China-based retail FX traders, whose trading went up more than 30% in the aftermath.

LeapRate will keep covering the headlines related to new FX reforms in China.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

Read Also: