PBoC authority clears up confusion over Inter-bank Market Notice
(30 July 2015 – China) The People’s Bank of China (PBoC) recently announced the Notice of Issues Concerning Investment of Foreign Central Banks, International Financial Institutions and Sovereign Wealth Funds with RMB Funds in the Inter-bank Market as it seeks to build a deep and liquid bond market that is more transparent.
Concerning this Notice, the PBoC introduced a registration system, eliminated quotas for these foreign institutions, expanded the authorised investments to a broad range of interest rate instruments including cash bond, bond repo, securities lending, bond forward, interest rate swaps and forward rate agreement, and allowed these institutions to choose between the PBoC and other inter-bank settlement agents.
To promote stable and healthy development of the bond market, the PBoC said it encourages overseas institutional investors to make long-term investments based on their needs for preserving and increasing the value of their assets.
“However, this is not inconsistent with these institutions making short-term investments and positions adjustment based on their liquidity management needs,” a PBoC official said.
“The Notice does not prohibit other investment needs.
“Internationally, central banks and monetary authorities, international financial institutions and sovereign wealth funds are basically long-term investors, and fall into the category of long-term investors on the inter-bank bond market as defined in China; therefore, there are no requirements on holding maturity or minimum holding amount.”
For a long time, the PBC has encouraged relevant overseas institutional investors to invest in China’s inter-bank market.
The official said the “reciprocity principle” in the Notice does not mean that the PBoC presets conditions for relevant overseas institutions.
“International experiences have also shown that central banks and monetary authorities, international financial institutions and sovereign wealth funds conform to the reciprocity principle and macro-prudential requirements.
“We welcome these institutions to make investment in China’s inter-bank market”
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