China to increase flexibility of its exchange rate as FX reforms continue

China holds itself in a coveted position as a potential land of opportunity for the vast majority of retail FX firms across the globe, a dynamic that has increased substantially as the entire FX industry has shifted its attention away from Western markets and onto the lands of opportunity in the Far East.

Although tremendous effort has been made by many firms to attract clients from mainland China, with a considerable degree of success in many cases, accessibility to conducting business in China is restricted immensely by the communist government’s disdain for the free market, and the resultant barriers to onboarding Chinese clients that are associated with such government control.

Despite some small signs of economic liberalization having appeared over recent months, the state owned Peoples Bank of China (PBOC) has stuck firmly to its mandate of keeping Chinese business in China.

On Saturday, however, a further development toward progress was made, with the PBOC’s governor Zhou Xiaochuan having stated to his international counterparts that the “increasing flexibility” of the country’s exchange rate will be “further improved” along with market-oriented interest rate policy.

According to a report by Deutsche Borse-owned news source MNI, Mr.Zhou’s statement to the International Monetary and Financial Committee, the group of that guides IMF policy, paralleled the committee’s communique in its assessment of an uneven global recovery with continuing downside risks. In describing his own country’s policies, he repeated that growth, that has been running at a 7.4% annual rate, will continue to be “steady.”

On the reforms of most interest to the rest of the global economy, including the United States, he recounted the explicit pledges on currency and rate liberalization the observance of which has attracted as much criticism for shortfalls as praise for ultimate goals.

“Structural adjustments and reforms will be pushed forward,” Zhou said. “Market-based interest rate reform will continue, so as to improve the efficiency of financial resources and improve the monetary policy framework.”

The renminbi exchange rate regime, he said, “will be further improved, while the pace of capital account convertibility will be steadily promoted.”

Mr. Zhou further asserted that China is instituting government bank deposit insurance “in due course,” and reforms of “state-owned enterprises will continue.”

“By striking a fine balance in promoting reforms and structural adjustments, on one hand, and supporting growth stability, on the other, the Chinese economy will continue to contribute to international monetary stability,” he said.

At the conclusion of the day’s IMFC meeting, answering a question about China, IMF Managing Director Christine Lagarde said the internationalization of China’s currency is making “real progress,” and she said she is “comforted by their determination to implement a massive set of reforms in all areas.”

Looking to the future, and acknowledging the amount of progress still to be accomplished, she said, “We look forward to that implementation taking place.”

Currently, FX companies around the world rely extensively on introducing brokers and representatives within China to provide a supply chain of business, which in many cases has proven very lucrative. With the PBOC and Chinese government looking toward a degree of participation in the global economies, China is well positioned to be a veritable gold mine for FX companies. In December this year, the FXIC business to business FX conference will be held at the Waldorf Astoria Shanghai on a Bund which will provide a valuable opportunity for international FX executives to meet with potential Chinese partners in order to drive their business forward.

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