Chinese banks forced to cover tracks of forex regulator

China’s forex regulator is telling banks to keep its instructions about curbing capital outflows secret and to ensure that research analysts keep any negative views about the yuan’s prospects to themselves, several bankers said, according to Reuters.

Both demands are seen as an attempt by the authorities to prevent alarm that could trigger further declines in the yuan, assumed several bankers.

The yuan lost more than 6% against the dollar last year and is at eight-year lows, prompting a flurry of restrictive measures on capital outflows from the State Administration of Foreign Exchange (SAFE), including setting limits on banks’ currency volumes in some cities or provinces and requiring approval for ever smaller transactions.

They told us not to publish bad house views – analyst house views – on the yuan”, a representative from an international bank, attending SAFE’s meeting back in August, commented.

A second banker on the forex team of an international bank said his bank had received the same instructions.

We’re not going to tell our customers that (our forex business) has stopped; we just have to find ways to turn down the business we’re not allowed to do,” said a banker at Chinese Commercial Bank Ping An who had received SAFE instructions from seniors.

SAFE also told the banks to interview clients to make sure the forex deals were not for fake transactions, or else face punishment, according to two bankers at separate listed banks.

China’s foreign exchange reserves fell to $3.05 trillion in November from $3.3 trillion in the first 11 months of 2016, and many traders are betting there will be further outflows as U.S. interest rates rises make dollar assets more attractive.

But SAFE wants banks to advise clients to buy yuan and sell dollars, the international bank representative said, a play that is likely to lose clients money.

At the same time, SAFE is quietly choking programmes designed to open overseas markets to Chinese investors.

SAFE has yet to responded to requests for comment.

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