(2 September 2015 – China) People’s Bank of China (PBOC) will tighten rules on trading currency forwards from October 15. The move aims to reduce growing depreciation pressure on the Yuan.
From this date, banks buying and selling currency forwards denominated in U.S. dollars for clients will be asked to deposit 20% of their sales at the PBOC. The deposits will be held at zero interest rate and frozen for a year.
The new requirement is intended to prevent “macro financial risks,” said the PBOC notice, which was issued to large Chinese banks on Monday.
The decision follows the surprise devaluation from China’s central bank last month, with strong expectation of more devaluation in the near future.
According to sources, the central bank is considering ways to narrow the gap between the onshore and offshore yuan. Tuesday’s action is partly intended for that purpose.