The Financial Times reports this morning that the Chinese government is continuing on its path of financial market liberalization (as it said it would):
China stepped up the pace of its effort to liberalise its currency regime, allowing more financial institutions and companies to trade foreign currencies in the spot market and introducing renminbi forward contracts and swaps into the onshore interbank market.
Here are a few details, from China Daily:
The new rules allow all domestic banks to seek approval for conducting forwards trading. Financial institutions given that approval will be qualified six months later to begin swaps business.
The new rules also expand the range of forwards trading allowed.
However, the central bank said swaps of the yuan against foreign currencies couldn't involve the exchange of interest rates, implying the transactions wouldn't leave loopholes for trading of interest rate swaps.
At the same time, the Chinese central bank has provided some insight into the basket of currencies that will inform its exchange rate decisions.
China disclosed for the first time Wednesday the composition of the basket of currencies used to set the yuan's value, saying it mainly includes the U.S. dollar, euro, yen and Korean won, the Associated Press reported.
The currencies of Singapore, Britain, Malaysia, Russia, Australia, Canada and Thailand are also considered in setting the yuan's foreign exchange rate, Zhou Xiaochuan, the central bank governor, said during a speech to launch a new operations center for the People's Bank of China in Shanghai.
Well, Ok, that's as far as it goes...
The news dispels at least some of the mystery surrounding the yuan's new exchange rate, although there was no information about the weightings of each currency.
... but it's more than we knew yesterday, even if pretty much what we all expected. There was, as you might have come to expect, an intriguing note in the collection of announcements:
While widening currency trading onshore, the bank said it would strengthen its oversight and management of the market "to guarantee stable, orderly market operations and maintain the basic stability of the yuan exchange rate at a reasonable, balanced level."
Not sure exactly what that means, but I'm sticking with my judgment that this is a positive development that only enhances the likelihood of an orderly transition toward further yuan revaluations.