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China's interbank foreign exchange market will start trading eight overseas currency pairs today, opening a new platform for the trading of foreign currencies.
The new trading platform, based in the China Foreign Exchange Trade System (CFETS) in Shanghai, is an important step toward building a more mature foreign exchange (forex) market, and will help meet the growing needs for funding and risk hedging among Chinese enterprises, analysts say.
Previously, the market allowed only trading between local currency renminbi and the US dollar, Japanese yen, euro and the Hong Kong dollar.
The trading of overseas currencies "will help develop China's interbank foreign exchange market, diversify products, activate trading and enlarge trade volumes," the People's Bank of China (PBOC), China's central bank, said in a statement.
The move will also provide China's smaller financial institutions with access to international financial markets, which they have mostly been unable to enter and help improve domestic financial institutions' risk management capacities, particularly in forex transactions, it said.
"The globalization of trade means Chinese companies are no longer only dealing in US dollars. They also deal in the Japanese yen and euro, and need diversified trading opportunities," said Tan Yaling, a senior manager with the Global Markets Department at the Bank of China, the nation's largest forex bank.
The expected start of trading in overseas currency pairs fuelled speculation last week that China may use the occasion as an opportunity to launch renminbi exchange rate reform, a rumour which was dismissed by PBOC Governor Zhou Xiaochuan.
Speculation about imminent revaluation of the renminbi, which some of China's major trading partners complain is undervalued,has been rife in recent months.
The Chinese Government has reiterated that, instead of resorting to a simple revaluation of the currency, it will improve the exchange rate mechanism itself, a move which requires a more mature forex market.
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