Forex reg­u­la­tor warns risks may rise

The Myanmar Times - Weekend - - International Business -

CHINA’S top for­eign ex­change reg­u­la­tor warned on Wed­nes­day that sys­temic risk will pos­si­bly rise in the for­eign ex­change mar­ket due to un­ex­pected fluc­tu­a­tions from ir­ra­tional trad­ing, as head­winds may get fiercer along with the deep­ened open­ing of the fi­nan­cial sec­tor.

As some de­vel­oped economies grad­u­ally with­draw as­set pur­chas­ing pro­grams or quan­ti­ta­tive eas­ing poli­cies, China’s mon­e­tary au­thor­ity should con­sider how to main­tain a sound en­vi­ron­ment for trade and in­vest­ment to pre­vent strikes from risk ex­po­sure, Lu Lei, deputy di­rec­tor of the State Ad­min­is­tra­tion of For­eign Ex­change, said at a fo­rum in Bei­jing.

He said the for­eign ex­change re­serve will re­main a cru­cial tool to pre­vent ir­ra­tional fluc­tu­a­tions, and hinted that there is no lower limit to the amount that should be held by the mon­e­tary au­thor­ity.

Due to a more sta­ble yuan against the US dol­lar and a bas­ket of ma­jor economies’ cur­ren­cies re­cently, the China’s large cap­i­tal out­flows since the sec­ond half of 2015 turned into in­flows and the for­eign ex­change re­serve re­bounded to $3.11 tril­lion by the end of last month from $2.998 tril­lion in Jan­uary, ac­cord­ing to the cen­tral bank.

Mar­ket con­cerns in­creased when the for­eign ex­change re­serve dropped, as it was used to sta­bi­lize the cur­rency’s value, and passed the”psy­cho­log­i­cal bot­tom line” of $3 tril­lion.

“There is no cer­tain line,” said Lu, as the most im­por­tant func­tion of the re­serve is to pre­vent large fluc­tu­a­tions in cross­bor­der cap­i­tal flows.

The man­age­ment of for­eign ex­change re­serves should not only fo­cus on keep­ing and in­creas­ing value, as an in­vest­ment as­set, but take ad­van­tage of the role in eco­nomic and fi­nan­cial sta­bi­liza­tion, said Lu.

Huang Qi­fan, vice-chair­man of the Eco­nomic and Fi­nance Com­mit­tee of the Na­tional Peo­ple’s Congress, the coun­try’s top leg­is­la­ture, called for for­eign ex­change re­form ear­lier this month, claim­ing that the cur­rent man­age­ment method was one of the rea­sons for the over­sup­ply that led to ex­cess liq­uid­ity and chaotic ac­tiv­i­ties in the fi­nan­cial sec­tor.

Reg­u­la­tory poli­cies in the for­eign ex­change mar­ket will fo­cus more on the over­all fi­nan­cial sta­tus in­stead of su­per­vis­ing cer­tain sin­gle ac­tiv­ity in the fu­ture, and it will be taken as part of the macro-pru­den­tial assess­ment reg­u­la­tion frame­work, said Lu.

“It will be more trans­par­ent and mar­ket-ori­ented, us­ing price as the tool for flex­i­ble ad­just­ment, while pre­vent­ing pol­icy dis­crim­i­na­tion,” he said.

The macro-pru­den­tial pol­icy will help to sta­bi­lize cap­i­tal flows while avoid­ing mis­matched de­mand and sup­ply of funds un­der the govern­ment’s ad­min­is­tra­tive in­ter­ven­tion, and it is sig­nif­i­cant for fur­ther open­ing the fi­nan­cial sec­tor and to achieve a fully opened cap­i­tal ac­count, said Lu.

– China Daily

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