Central bank considers yuan market makers
China's central bank is considering appointing market-maker banks to quote and trade the yuan against major foreign currencies, in an apparent bid towards more floatability, and an eventual free trading of the yuan, the Bloomberg.com reported Monday.
The People's Bank of China may name banks including HSBC Holdings Plc, Citigroup Inc. and Bank of China as market makers in the yuan, also called Renminbi, in a step toward a freely traded currency, Bloomberg quoted bankers and traders familiar with the situation as saying.
Market makers may be able to quote and trade the yuan against the dollar, euro and yen by year-end, ending the central bank's monopoly on setting interbank exchange rates, said the people, who declined to be named.
Prices for the dollar will still have to be within 0.3 percent of a daily rate set by the central bank, while the band for yuan trading against other currencies like yen and euro was enlarged to 3 percent last Friday, under a decree by the central bank.
The People's Bank of China is moving toward market-based pricing for its currency, a step toward ending its role as the sole counterparty in all foreign-exchange deals and increased trading.
``As soon as we have market makers, banks will be given freedom to price dollars against yuan,'' said Stephen Green, an economist in Shanghai at Standard Chartered Plc. ``They would definitely create a market. We expect the margin in which the yuan is traded will widen.''
Being a market maker may give the banks an inside track when China allows the yuan to trade more freely in the US$1.9 trillion- a-day world market for foreign exchanges. China's currency reserves rose to US$740 billion in July. The nation's economy expanded at a 9.5 percent pace in the second quarter.
People's Bank of China officials met with representatives from seven local lenders to discuss naming market makers, said people who attended the meetings.
Three foreign banks, Citigroup the world's largest financial institution, HSBC and Deutsche Bank AG, the largest currency trading bank, were invited to a separate meeting, said a person who attended the session.
Dandan Chang, a spokeswoman for HSBC in Shanghai, declined to comment, as did Stephen Thomas, a spokesman for Citigroup in Shanghai, and Sauw Yim, a spokeswoman for Deutsche Bank in Hong Kong. People's Bank of China officials didn't respond to two faxes from Bloomberg seeking comment.