Former China FX official says it is an “opportune time” to launch yuan futures
A former senior official at China’s foreign exchange regulator has urged the swift introduction of yuan futures to improve hedging in a forex market whose recent yuan appreciation trend has been shaped by a “herd effect “.
SHANGHAI: A former senior official with China’s foreign exchange regulator advocated the rapid introduction of yuan futures to improve hedging in a foreign exchange market whose recent trend towards the appreciation of the yuan has been shaped by an “effect”. herd ”.
Writing in Yicai, a Chinese financial news outlet, over the weekend, Guan Tao, chief global economist at BOC International and former head of the balance of payments department of the State Exchange Administration (SAFE ), called it a “momentous opportunity” to start trading in yuan futures.
Guan said it would help investors and businesses “to better manage currency risk while improving the efficiency of supervision.”
A working paper released in April by researchers at the People’s Bank of China also called for the creation of a yuan futures market to help investors better hedge against currency risks.
China has already introduced basic currency derivatives, including futures, currency swaps and options.
“The initiation of yuan futures trading can help us grasp a weapon to deal with various forms of currency attacks, improve the capabilities of risk prevention and control and response in an open market, and better implement financial security development strategies, “Guan said.
He noted that the recent strength of the yuan has fostered a procyclical “herd effect”, whereby the appreciation of the currency is fueled by self-fulfilling expectations.
The Chinese yuan has gained around 12% against the dollar since May 2020 and is at its highest level in more than three years.
Many Chinese policymakers recently warned market participants against betting on unilateral currency moves, and the People’s Bank of China last week raised the reserve requirement ratio on foreign currency deposits for the first time in 14 years old.
Amid the recent higher yuan volatility, several banking sources told Reuters they had been advised by the currency regulator to guide their corporate clients to hedge currency exposures and keep their position “risk neutral. “.
Political sources told Reuters that China is likely to take gradual steps to slow the yuan’s gains to deter speculators and help exporters, while avoiding drastic measures that could undermine its goal of liberalizing the currency and to strengthen the yuan’s global influence.
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Simon Cameron-Moore)