PBOC says China does not need more FX reserves

Chinese officials will be taking first steps towards FX liberalization

It has been only a couple of days since we heard from Chinese officials on the subject of FX market reform. It has proved to be enough for us to get more details into the thinking of the People’s Bank Of China (PBOC). As Bloomberg reported first, the deputy governor Yi Gang speaking at Tsinghua University has stated that it is no longer in the interests of the country to accumulate foreign exchange reserves.

The statement basically means that China is to halt purchases of foreign currencies to boost its capital cushion and will allow the local Chinese Yuan to play a more substantial role in the country’s economic transformation from an export to domestic demand led economy. According to the same article by Bloomberg Press foreign-exchange reserves have reached $3.66 trillion. It seems as if it was yesterday when they announced hitting the 1 trillion mark back in 2006.

Critics of the policy including the US Treasury that has recently voiced its concern about the value of the Chinese Yuan will finally be appeased. While the awareness about forex trading among the Chinese population keeps rising. China-based retail FX traders, whose trading went up more than 30% in the aftermath of the widening of the trading band back in April will surely become a pillar of support for volumes at institutional and retail brokerages worldwide.

We have to bear in mind though, that the process is very likely to be quite gradual and full liberalization will not be achieved in the near future. The hot money flows that could be spurred from the process could further dampen the ambitions of Chinese policymakers. We will keep reporting on the pace of reforms, so stay tuned to LeapRate.

You can follow the link to read the full article on Bloomberg’s website.

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

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PBOC says China does not need more FX reserves


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