According to some sources in the know, China’s central bank has temporarily suspended some foreign exchange businesses of several foreign banks until the end of March. Among the suspended services was the liquidation of spot positions for clients and some other benefits related to cross-border, onshore and offshore businesses.
The names of the three banks notified by the People’s Bank of China were not made public and there was no further comment from the PBOC when contacted.
The measure follows a slew of steps taken by the Chinese government to keep the yuan stable and cushion capital outflows due to the Chinese currency’s recent depreciation since it was devalued in August.
The spread between the onshore and offshore markets for the yuan, or renminbi, has been growing since the devaluation, making it increasingly difficult for the central bank to manage its currency and stem an outflow of capital from an economy that is facing its slowest growth in 25 years.
Temporary Move
One economist who declined to give his name said the measure was a temporary step to curb demand for dollars that has been strengthening toward the end of the year as the gap between the onshore and offshore yuan exchange rates widens.
According to him, “They hope to ease foreign exchange buying pressure and ease depreciation pressure on the yuan. But I don’t think the authorities will take very strong capital control measures; they are likely to reinforce the existing measures.”
The suspension could ease pressure on the PBOC to intervene directly in offshore markets to support the yuan, which has contributed to a fall of more than $400 billion in China’s foreign exchange reserves this year.
