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PBOC tightens Chinese banks' FX transactions

PBOC tightens Chinese banks’ FX transactions

(21 September 2015 – China) In order to prevent illegal cross-border currency trading, China’s central bank has ordered domestic banks to closely monitor clients' foreign exchange transactions, Reuters reports.

According to sources, firms have utilised back channels such as overseas subsidiaries, to conduct arbitrage trading between onshore and offshore markets. Some have used bogus foreign trade deals to disguise speculative transactions.

Now the People’s Bank of China (PBOC) has increased its settlement charges for some, but not all banks, suggesting the central bank was disciplining those which helped their clients to conduct the arbitrage transactions..

According to a source,  banks suspected of assisting clients making these illicit deals, received PBOC notices of rate hikes on Thursday.

Following PBOC’s devaluation of the yuan by nearly 2 percent against the dollar last month, global markets became unsettled as expectations of further yuan depreciation surged in the face of the country’s sharp economic slowdown.

On Thursday, the State Administration of Foreign Exchange said it would conduct checks on firms' foreign exchange transactions to prevent speculation on yuan depreciation and intensify action against illegal cross-border money transactions.

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