China tells banks to cut dlr shorts, foreign debt
BEIJING: Chinese banks must cut their short dollar positions and also reduce their short-term foreign debt holdings, the currency regulator said on Wednesday.
The tightening of existing restrictions is the latest step by China to cut the scope for capital inflows betting on faster yuan appreciation.
In a short statement on its website, the State Administration of Foreign Exchange ( SAFE) said it wanted to prevent illegal inflows and protect national financial security.
"SAFE is taking various measures to repel potential speculative inflows and I think the recent steps will definitely show some results," said E Yongjian, an economist at Bank of Communications.
China already has strict controls in place to block speculative inflows and regularly tries to reinforce them, an objective that has become more important in recent months as yuan appreciation has edged up.
"It will also help reduce the foreign exchange purchases, which could ease pressure on the central bank to sterilise in the money market," E Yongjian said.
To keep the yuan from rising too quickly against the dollar, China buys most of the foreign exchange that enters the country and must then mop up -- or sterilise -- the yuan that is created in the process to guard against inflation. -Reuters