China looks to open interbank FX market to brokers

The fierce grip which China has over the ability for western firms to trade with its populace appears to show some signs of subsiding, as highlighted by a report today by Reuters which states that the Chinese government is considering allowing companies which operate in the non-bank financial sector such as brokerages, insurance companies and trust firms to operate within the interbank FX market in China.

Should this come to fruition, it would represent the latest step by China’s leaders to liberalize the country’s tightly-controlled financial markets.

Whilst it is highly unlikely that China will cede power completely and embrace the free market model in terms of allowing unchecked access to the conducting of business with western firms, however it would be the biggest reform in its forex market since the central bank doubled the daily trading range for its yuan currency in March.

Currently the interbank foreign exchange market in China is limited only to banks, and is restricted to Chinese domestic business only. Authorities are seeking feedback on a draft proposal to allow non-banks to conduct trades with market makers in the spot and derivatives markets, according to the government and banking sources, who spoke on condition of anonymity.

Reuters highlighted in this particular report that China has been gradually rolling out a series of market reforms over the past years aimed at developing its financial markets. In March, it increased the daily trading band of the yuan, allowing it to rise or fall 2 percent from the official daily midpoint which is set by the People’s Bank of China every morning.

The move was seen as a sign of confidence that the central bank had successfully fought off currency speculators, as the yuan had long been viewed as a one-way appreciation bet.

The State Council, China’s cabinet, pledged in May to push ahead with broad range of capital market reforms, including developing a system for direct bond issuance by local governments, streamlining IPO approval processes and removal of restrictions.

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