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Banking industry

China's Banks Launch New Currency Trading System Amid Growing Pressure to Revalue Renminbi

Strategic Insights

— 1 min read

As China's banks come online with a new trading system, analysts say it's a crucial step in preparing the country's markets for the eventual flotation of the renminbi. The China Foreign Exchange Trade System, a subsidiary of the Peoples Bank of China, has launched a new dealing network with 10 market-making banks and up to 300 price-taking banks. The system allows trading in major currency pairs, including the US dollar, euro, sterling, yen, Swiss franc, Australian dollar, and Canadian dollar, as well as trading in the euro against the yen.

Key Takeaways:

  • The new system, built by Reuters, will facilitate trading in major currency pairs, with a minimum block size of $100,000 and a maximum deal size of $10 million.
  • The system is expected to help develop market awareness and skills in China, marking an important step in preparing China's markets for the eventual flotation of the renminbi.
  • Chinese officials have stated that revaluing the renminbi is in China's long-term interest, but have provided little information on the timing of any move.
  • The US Treasury, in its half-yearly report to Congress, expressed expectations that China would revalue its currency within six months.
  • The report stopped short of labeling China a currency manipulator, but the tougher language could escalate tensions between the two countries.
  • The new trading system will be crucial in shaping China's currency market, with potential implications for global trade and economic stability.

Statistics:

  • 10 market-making banks and up to 300 price-taking banks are participating in the new dealing network.
  • Trades will be conducted in minimum blocks of $100,000.
  • Maximum deal size will be limited to $10 million.
  • 7 major currency pairs are being traded on the new system: US dollar, euro, sterling, yen, Swiss franc, Australian dollar, and Canadian dollar.
  • The euro against the yen will also be traded on the new system.

Sources:

  • Reuters (customised trading software provider)
  • Peoples Bank of China (subsidiary: China Foreign Exchange Trade System)
  • US Treasury (half-yearly report to Congress)

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