At the Shanghai-based China Foreign Exchange Swap Center on
Wednesday morning, the Bank of China and Fujian Industrial Bank
completed the Center's first trading session between the US and HK
dollars, at 7.7993 HK dollars against one US dollar, with a
turnover of one million US dollars.
This transaction as between foreign currencies is a first on the
Chinese mainland and is seen by China's financial circle as a
milestone in the sector's internationalization drive. It is also
hailed by the business media as a step towards a potential full
convertibility of the renminbi (RMB), the Chinese currency.
In the past, Chinese banking institutions were only allowed to
deal in trades between RMB and foreign currencies. In addition,
they were unable to buy and sell foreign currencies directly on
international money markets with foreign exchange they held, due
largely to their low credit ratings and high risks of exposure.
The newly acquired access to two-way trade among foreign
currencies implies that China's interbank market is evolving into a
foreign exchange market that has the capabilities to transfer and
manage risks in exchange rates, according to financial experts.
Zheng Yang, deputy head of the State Administration of Foreign
Exchange (SAFE) Shanghai branch, said China has suffered a deficit
in trade of financial services for years. "To trade foreign
currencies directly allows international trade between Chinese and
foreign banks to transform into domestic trade," Zheng Yang
acknowledged.
According to Li Yu, vice president of the China Foreign Exchange
Swap Center, the new forex market will also experiment with RMB
derivatives.
"The step forward in the RMB convertibility process and the
growth of the liberalization and internationalization of Chinese
currency is bound to demand a corresponding RMB pricing platform
that is closely related to international forex markets," Li
said.
The new trade between foreign currencies has introduced
international best practices, active international market movers
and shakers, and a pricing system that keeps pace with the global
forex market, he added.
This development has so far attracted seven international banks
including Citi Group and HSBC (Hong Kong and Shanghai Banking
Corp.). They, in partnership with three Chinese banks, have become
the first batch of market makers on the China forex swap
market.
"The eight pairs of foreign currencies trading on the Chinese
mainland boast good liquidity. This will help China's interbank
forex market to build up a trustworthy image in world markets,"
said Rod Jones, executive managing director of the International
Capital Markets, Bank of Montreal, Canada.
Jay Lim, vice president of eCommerce Asia Pacific Global Markets
at ABN AMRO, said the new forex trading mode "is writing the
history of China's financial market."
(Xinhua News Agency May 20, 2005)