China Will Relax Regulations on Banks Renminbi Trading

China will be relaxing the restrictions it has on renminbi trading by the country’s banks starting on January 1, in a small yet significant step by the central government towards relaxing capital controls.

The new changes replace the daily caps banks have for foreign exchange positions with limits weekly and for only the first time, establish new unified standards for the total foreign exchange positions banks are allowed to hold.

The State Administration of Foreign Exchange, which is the government’s regulator, published online a set of new regulations in an attempt to simplify a group of 14 related regulations with the addition of two new provisions that liberalize foreign currency trading by banks.

Thus far in December, the renminbi is down by 1.3% and looks ready to close out the year down over 2.8% because of bearish pressure that analysts expect to last far into the next year.

Beginning Thursday, the government will check the banks’ compliance status every week, leaving the banks more leeway to short their dollars during that period said traders.

However, the government body appeared to discourage that form of interpretation of its new statement.

While the position caps for the shorting of dollars would remain the same, the regulator published standards for the total forex positions will apply to all.

Banks needed to individually apply for that quota.

All banks that have under $100 million in forex settlement business the previous year will be given total positions that are $50 million as an average by the end of the day.

According to new rules, the maximum short position that is $3 million will be imposed as well.

Those recording values of $100 million to $1 billion will be given total positions that are $300 million as well as short positions that reach $5 million.

Those that do business of more than $1 billion will have positions of up to $1 billion and shorts of $10 million.

These new rules also apply to foreign banks based in China; oversea lenders that have over one office inside China must put on office in charge of managing said positions.

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