(15 February 2018 – China) China's foreign exchange (FX) regulator has announced that it is now allowing both physical and cash settlements in foreign exchange forwards to make such business fully market-oriented.
All the FX forward contracts should be conducted under the premise of the principle of real needs, the State Administration of Foreign Exchange (SAFE) said in a statement.
The regulator added that cash settlement should be denominated in yuan with reference prices that are real and effective onshore market exchange rates.
The SAFE allowed cash settlement in buying foreign exchange forwards in 2016.
The revised rules allow cash settlement, wherein the net cash flows are settled within the counterparties. Whereas previously FX forwards in the yuan were settled on a physical basis, meaning there was an actual delivery of the underlying currencies under the contract upon maturity of the contract.
In the statement, released on Tuesday, the SAFE reported that foreign exchange transactions in the domestic market totaled the equivalent of US$24 trillion in 2017.