China’s Forex Regulator Seeks Opinions of Banks on Currency Risks

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The Chinese foreign exchange regulator has taken the rare move of conducting a survey of banks and companies to determine their ability to deal with exchange rate volatility, according to sources speaking to Reuters.

A source directly involved with the survey said that the State Administration of Foreign Exchange (SAFE) has sounded out companies from different sectors of the Chinese economy about their methods for managing forex exposure and their use of hedging tools.

Other sources said that the survey conducted in August differed from the standard quarterly questionnaires that are required of banks vis-a-vis their proprietary trading operations, and are instead more akin to surveys last conducted in 2014 and 2016.

SAFE could be concerned about volatility in the exchange rate, as central banks around the world including the US Federal Reserve gradually dial back on stimulus measures launched to deal with the impacts of the COVID-19 pandemic.

Chinese authorities have also recently called for domestic companies to adopt precautions against currency risks, amidst ongoing efforts to liberalise the capital account.

While strong inflows of funds into China’s capital markets have helped to push the renminbi almost 11% higher compared to May 2020, economists have expressed concern that the currency could soon weaken in the wake of heavy-handed regulatory interventions that will undermine the stock market, as well as a slowdown in exports

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