Volumes of onshore renminbi foreign exchange forwards sales fell by 82% in the month after the People’s Bank of China raised the cost of the trades once again, but sources say heightened volatility means many corporates will still be happy to pay the additional outlay.
From September 28, the PBoC has required banks to put up a zero-interest, US dollar-denominated deposit representing 20% of the notional value of all new FX forwards and swaps that are selling onshore renminbi for a year. This deposit needs to be funded by the banks and costs get passed back to users, resulting in an extra 800 basis points of costs in some cases.
Data from China’s State Administration of Foreign Exchange (Safe) shows the monthly volume of forwards where renminbi is sold in the onshore dealer-to-client market fell from $70 billion in September to $12.7 billion in October. FX forward sales stood at $26 billion for October last year.
The fall came despite…
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