China suspends forex business for some foreign banks, say sources

A pedestrian walking past the People's Bank of China headquarters in Beijing.
A pedestrian walking past the People's Bank of China headquarters in Beijing. PHOTO: BLOOMBERG

SHANGHAI (REUTERS) - China's central bank has suspended at least three foreign banks from conducting some foreign exchange business until the end of March, three sources who had seen the suspension notices told Reuters on Wednesday (Dec 30).

Included among the suspended services are liquidation of spot positions for clients and some other services related to cross-border, onshore and offshore businesses, the sources said.

The sources, speaking on condition that the banks were not named, said the notices sent to the affected foreign banks by the People's Bank of China (PBOC) gave no reason for the suspension.

The sources said the banks might have been targeted due to the large scale of their cross-border forex businesses.

"This is part of the PBOC's expedient means to stabilise the yuan's exchange rate," said an executive at a foreign bank contacted separately.

China has taken a slew of steps to keep the yuan stable since it devalued the currency in August. The PBOC had no immediate comment.

The latest move comes just three months since the PBOC ordered banks to closely scrutinise clients' foreign exchange transactions to prevent illicit cross-border currency arbitrage, which takes advantage of the different exchange rates the yuan fetches in offshore and onshore markets.

The spread has been growing since the August devaluation, which makes it increasingly difficult for the bank to manage its currency and stem an outflow of capital from its slowing economy.

The yuan has come under renewed pressure since late November amid speculation that Beijing would permit more depreciation after the International Monetary Fund announced the currency's admission into the fund's basket of reserve currencies.

The onshore yuan traded in Shanghai has lost 1.44 per cent of its value since the end of November, and has repeatedly hit 4-1/2 year lows.

The offshore market has traced a similar pattern. The Hong Kong-traded offshore yuan hit an intraday low of 6.5965 on Wednesday morning, its weakest since late September 2011.