China tells banks to cut dlr shorts, for­eign debt

The Financial Daily - - ECONOMY & CONTINUATION -

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

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