Seven More International Institutions Join China’s Forex Market

China has opened up its foreign exchange market further by allowing seven more institutions to participate in its inter-bank foreign exchange (forex) market.

According to media reports, the seven new institutions are the Reserve Bank of India, the Bank of Korea, the Monetary Authority of Singapore, the Bank Indonesia, the Bank of Thailand, the Bank for International Settlement and the International Finance Corporation who have all completed registration with the China Foreign Exchange Trading System giving them official access to the forex market.

This latest addition will bring the number of foreign institutions having access to China’s forex market to a total of 14. China’s central bank, the People’s Bank of China (PBOC) first allowed international institutions and banks to start operating in its currency market from November 2015. Institutions being allowed to participate typically fall in three categories – foreign central banks (monetary authorities), international financial institutions and sovereign wealth funds.

According to reports, the institutions can directly participate in the inter-bank forex market as foreign members, utilize existing inter-bank forex market members as agents or make use of the opportunity to use the PBOC as their agent. They will be allowed to conduct renminbi and foreign exchange transactions involving one or more traded forex products, including spots, swaps, forwards and options in the country’s foreign exchange market.

The institutions allowed in the first phase were Hong Kong Monetary Authority, Reserve Bank of Australia, National Bank of Hungary, The International Bank for Reconstruction and Development, International Development Association, Trust Funds of World Bank Group, and Government of Singapore Investment Corp.

The forex participation regulations were changed just before the International Monetary Fund announced that China’s yuan would be joining its foreign exchange basket in 2015. The move is considered to be part of the Chinese government’s decision to improve openness of its markets and free it up from central control. Earlier in October 2015, The Bank of China launched a renminbi (RMB) bond trading index across London, Beijing and Singapore and has announced that it will be establishing a trading centre in London, indicating the growing internationalisation of the RMB.

However, there are a number of central controls that are still in place. Increasing signs of a slowdown in China’s economy and the yuan’s devaluations in recent times has increased the risk of capital flight. The central bank has taken a number of precautions including suspending forex operations of at least three foreign banks from the 31st of December 2015 till the end of March 2016.

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