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China Plans To Boost FX Market, Encouraging More Trading

China’s economy has been shaken over trade wars with America and Beijing is looking to flex its muscles on the global stage and strengthen its economy. One of the current focuses is on strengthening and expanding its forex market in the hopes of attracting more investment from domestic and foreign players.

The China Foreign Exchange Trade System (CFETS), which is a part of the Chinese central bank, already has plans to set up swaps involving foreign currencies. This includes forex swaps with full interest rates. This is just one of the steps that the CFETS is hoping to take to improve its forex position.

Another move that the CFETS is taking is to create reference rates for domestic buyers and borrowers. CFETS is thinking of applying this to across a variety of maturity levels. This is expected to encourage those looking for US dollars to get them by trading at home rather than overseas.

China has been strict in ensuring that Chinese capital does not move out of the country. However, the country has been hoping to bring in more foreign investment. This is why it is opening up its domestic markets, even its oil futures. However, it is lagging behind in one area: currency trading.

Right now, Tokyo and Singapore dominate the forex trade in the Asian region, with their large volume of trades. This is despite the fact that China has become the biggest economy in the area. The recent moves are being done in hopes of changing that.

Big Moves Planned

The moves by CFETS are going to make it easier for Chinese companies to access foreign money. This will help in future trades and try and get the yuan in a better position on the global stage. China slowed down the internationalization of the yuan when it got hit by a devaluation in 2015. That is now in the past as Beijing looks to be moving forward for a second time as it prepares to link itself to foreign markets.

One example of such a link is the Bond Connect program. This lets foreign investors buy-up Chinese fixed income bonds through Hong Kong. Hong Kong traders have been able to do this since 2014, but foreigners did not have access to it.

The increased focus on forex is still pushing through despite the recent drop of the yuan against the dollar and the worsening trade war between two countries. CFETS is optimistic about the push, saying that the plan meets the needs of the market and will help develop the yuan.


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