UPDATE 1-China relaxes rules for currency forwards

* Relaxes rules to let more banks sell FX forwards

* Part of Beijing’s plan to deepen local derivatives market
(Adds background, details)

BEIJING, Dec 28 (BestGrowthStock) – China will allow more banks to
sell currency forwards to their clients to further develop
demand and the nation’s nascent derivatives market, the
country’s foreign exchange regulator said on Tuesday.

Smaller Chinese banks that were previously barred from
selling currency forwards can now partner their bigger, approved
counterparts to offer forward contracts to clients, the State
Administration of Foreign Exchange said on its website.

To match its growing economic clout, China wants to deepen
its financial market by gently easing the government’s tight
grip over the currency and interest rate regimes.

Currently, a Chinese bank must have an annual foreign
exchange turnover of at least $20 billion before it can apply
for a licence to sell currency forwards.

That has shut out many small banks from the forwards market.
Only 67 banks held the license in 2009.

Bank of China (601988.SS: ) (3988.Hk: ) is the biggest player in
the forwards market and sells forwards for a range of currencies
including the U.S. dollar, the euro (EUR=: ), sterling (GBP=: ), the
Hong Kong dollar (HKD=: ) and the yen (JPY=: ).

While the yuan (CNY=CFXS: ) is still firmly controlled by
China’s government, the break of its de facto peg to the U.S.
dollar in June has made it slightly more volatile.

It has gained 3 percent since its June depeg and is a
whisker from its highest level since a landmark 2005
revaluation.

In the long run, this should feed demand for currency
forwards among Chinese importers and exporters, most of whom are
not still not used to exchange rate fluctuations and are
inexperienced in managing currency risks.

An expansion of the forwards market is therefore an
important step in helping Beijing fulfil its repeated vows to
free up the yuan to market forces.

China’s control over the yuan has often drawn flak from U.S.
politicians, who accuse the world’s second-largest economy of
manipulating its currency to gain trade advantage.
(Reporting by Zhou Xin and Koh Gui Qing; Editing by Ruth
Pitchford)

UPDATE 1-China relaxes rules for currency forwards