China Launches First Ever Forex Lending/Borrowing Business

China Foreign Exchange Trading Center, a unit of the People's Bank of China, has announced that it will allow a limited business of borrowing and lending in foreign currencies, a step meant to enhance trading activity in the market. According to the announcement, starting from April 13th firms can borrow and lend in US dollars, euros and Hong Kong dollars.

Transactions will be conducted with a minimum of one million, denominated in the borrowed or lent currency. The listed lending periods are similar to the ones applied in yuan contracts, ranging from overnight to one year. Trading hours will last from 07 A.M to 07 P.M local time.

While maintaining a tight market grip, the Chinese financial leadership is constantly edging towards a market-oriented economy. Last month, the People’s Bank of China (PBOC) doubled the trading band for the yuan to 2%, easing the control mechanism in order to increase the Volatility of the RMB. This deviation from a 1% midpoint was preceded by such an incremental step in April 2012, when the PBOC doubled its trading band from 0.5% to 1%.