Perhaps in response to recent pressure from American politicians and
the IMF, the Central Bank of China made another push towards floating
the Yuan by introducing foreign exchange swaps. Swaps function like
futures, by enabling partied to buy and sell currencies at a fixed
exchange rate on a fixed date in the future. In this case, the Central
Bank has agreed to buy USD one year from now at a rate of 7.85 Yuan/USD.
Investors and analysts are speculating that the swaps lend explicit
insight into where the Central Bank
believes the Yuan will be in one
year. Non-deliverable forward contracts, which indicate collective
investor expectations for the future value of the Yuan, are currently
priced at 7.78 Yuan/USD. The China Daily reports:
Late Thursday, China’s State Administration for Foreign
Exchange announced it would also introduce a new currency trading system
allowing interbank market members to trade directly with each other.
Read More:
Central bank pushes foreign exchange reform
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