Banks Instructed to Cover Tracks of China's Forex Regulator: Reuters

Just over a week after concerns were raised about whether China’s new regulations on cash transactions and overseas transfers were capital controls in a disguised form, Finance Magnates has learned that China's foreign Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term regulator, the State Administration of Foreign Exchange (SAFE), has been asking banks to keep its instructions about curbing capital outflows a secret, and to ensure that research analysts keep any negative views related to the yuan's prospects to themselves, according to a Reuters report.

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The move is seen as an attempt to ward off fears that could trigger further declines in the yuan which lost over 6 percent against the dollar last year and is currently at eight-year lows.

No Written Instructions

The situation has prompted a series of restrictive measures on capital outflows from SAFE, including setting limits on banks' currency volumes and requiring approval for ever smaller transactions.

SAFE has instructed dozens of banks not to reveal their role in such restrictions, which some banks have said is damaging their relationships with clients since they are not permitted to explain the reason for turning away business.

Officials at SAFE reportedly told bankers: "You must control your Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term deficit, but you can't say that SAFE is controlling capital outflows”.

A banker at Chinese Commercial Bank Ping An who had received SAFE instructions from seniors said: "We're not going to tell our customers that our forex business has stopped; we just have to find ways to turn down the business we're not allowed to do. It's not good for client relationships," he added, explaining that he had told his clients to go to other banks.

Fake Transaction Alert

Banks have also been told to interview clients to make sure the forex deals were not for fake transactions, or they could face punishment, according to the report.

China's foreign exchange reserves fell to $3.05 trillion in November from $3.3 trillion in the first 11 months of 2016 with many traders anticipating further outflows as US interest rates rises make dollar assets more attractive. SAFE, however, wants banks to advise clients to buy yuan and sell dollars, a move that is likely to lose clients money.

The regulator is also said to be constricting programmes that are designed to open overseas markets to Chinese investors. For example, an investment programme set up so global funds can raise Chinese cash to invest overseas has ground to a halt without explanation.

A representative from an international bank explained there were no written instructions from SAFE, but a high-ranking official told them explicitly what was expected of them.