(Bloomberg) -- China will expand to foreign banks a measure designed to shore up the yuan and make it more costly for traders of forward contracts to bet on swings in the currency.
The People's Bank of China will from Aug. 15 begin imposing a 20 percent reserve requirement on offshore financial institutions trading foreign-exchange forwards for clients, according to a statement on Chinamoney.com.cn, a website of the China Foreign Exchange Trade System. The money will have to deposited when the institutions settle trades in the onshore market, and it will be held at zero interest for one year, according to the statement.
“This kind of tax will not change market expectations, and therefore will have limited impact on containing capital outflows,” Zhou Hao, an economist at Commerzbank AG in Singapore, wrote in a note. “Today's announcement hints that China's central bank sees that it is time to change the trajectory of the yuan's exchange rate.”
The central bank in October implemented a similar rule for domestic traders, a move intended in part to support the yuan. Wednesday's statement comes amid rising pressure on the yuan, with Britain's vote to leave the European Union adding to the stresses of a weakening economy and the risk of capital outflows.
The onshore yuan fell 0.11 percent to 6.6892 per dollar as of 7:18 p.m. in Shanghai, extending its decline over the past five days. The offshore yuan dropped 0.16 percent to 6.6993. A Bloomberg replica of the CFETS RMB Index, a basket of 13 currencies that's monitored by the PBOC, retreated 0.07 percent to 94.42.
To contact Bloomberg News staff for this story: Li Hui in Beijing at hli355@bloomberg.net. To contact the editors responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net, Edwin Chan, Robin Ganguly
With assistance from Li Hui
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
