PBOC takes steps to bol­ster liq­uid­ity

China Daily European Weekly - - Business -

yuan clear­ing banks and par­tic­i­pat­ing banks to tap liq­uid­ity from the on­shore mar­ket by rais­ing funds through in­ter­bank bor­row­ings, cross-bor­der ac­count fi­nanc­ing and in­ter­bank bond re­pur­chases.

Over­seas yuan clear­ing banks are re­quired, at the same time, to pro­vide plans for the yuan’s liq­uid­ity man­age­ment and risk re­sponse.

The PBOC also pledged to im­ple­ment bi­lat­eral lo­cal cur­rency swap agree­ments to fur­ther fa­cil­i­tate cross-bor­der trade and in­vest­ment, while main­tain­ing fi­nan­cial mar­ket sta­bil­ity.

The cash amount that should be re­served in the cen­tral bank’s branches in Shen­zhen and Zhuhai, Guang­dong prov­ince, was re­moved for yuan clear­ing banks lo­cated in Hong Kong and Ma­cao, the no­tice said.

The cen­tral bank also plans to en­hance over­seas in­vestors’ abil­ity to use for­eign cur­ren­cies or the yuan for in­vest­ment un­der the Shang­hai-Hong Kong and Shen­zhen-Hong Kong Stock Con­nect pro­grams, as part of an ef­fort to fa­cil­i­tate cross-bor­der cap­i­tal flows.

The Hong Kong Mon­e­tary Au­thor­ity is­sued a state­ment a few hours after the PBOC’s an­nounce­ment, wel­com­ing the new rules.

HKMA Chief Ex­ec­u­tive Nor­man Chan said: “As the yuan’s in­ter­na­tion­al­iza­tion con­tin­ues to progress and mu­tual ac­cess of cap­i­tal markets be­tween the two places fur­ther deep­ens, mar­ket de­mand for off­shore yuan liq­uid­ity will in­crease.

“The HKMA has all along main­tained close dia­logue with the PBOC to study mea­sures to fa­cil­i­tate cross-bor­der yuan fund flows. We be­lieve that the new mea­sures will help en­sure that the off­shore mar­ket will con­tinue to func­tion or­derly and ef­fi­ciently, and sup­port Hong Kong‘s de­vel­op­ment as a global off­shore yuan busi­ness hub.”

The in­ter­na­tional fi­nan­cial mar­ket has seen ris­ing volatil­ity since April, as the US dol­lar ex­change rate and in­ter­est rate were go­ing up, adding pres­sure to cross-bor­der cap­i­tal out­flows and cur­rency de­pre­ci­a­tion in emerg­ing markets.

The HKMA bought HK$9.5 bil­lion ($1.2 bil­lion; 1 bil­lion euros; £0.9 bil­lion) overnight on May 17, mark­ing the third-big­gest in­ter­ven­tion since the de­fense be­gan in April, given the lower in­ter­est rate com­pared with the US dol­lar. It has spent a to­tal of $7.95 bil­lion to main­tain a sta­ble cur­rency, which has re­sulted in liq­uid­ity tight­en­ing.

A spokesper­son from the State Ad­min­is­tra­tion of For­eign Ex­change, the coun­try’s top for­eign ex­change reg­u­la­tor, said China’s cross-bor­der cap­i­tal flows re­mained sta­ble in April, sup­ported by a sound eco­nomic foun­da­tion.

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