PBOC Asks Banks to Delay Squaring FX Positions

Some brokerage companies were told to scale back their proprietary FX trading, to alleviate downside pressure on the yuan.

The PBOC (People’s Bank of China) has reportedly asked banks to refrain from immediately squaring their FX positions in the market, and to run open positions for a while in order to alleviate downside pressure on the yuan.

According to Reuters, the informal “window guidance” asks banks to delay squaring their positions in the interbank FX market after any US dollar sales to clients, until their spot FX position hits a certain level.

The move would effectively mean some of the heavy dollar purchases by companies would be absorbed by banks and sit on their books for a while, thus partially reducing downward pressure on the sliding yuan.

Banks were also told to encourage their clients to hold off on dollar purchases, while some brokerage companies were told to scale back their proprietary FX trading.

The directive came from a meeting the PBOC held with commercial banks earlier in the week. Banks were also told that companies requiring to purchase USD 50 million or more will need to seek the central bank’s approval.

China’s yuan has lost more than 5 percent against the dollar so far this year as of Thursday (14 September), makinig it one of Asia’s worst performing currencies for 2023.