Chinese banks to trade FX on Reuters exchange

Financial Times London 2/20...China’s four largest banks yesterday signed up to trade foreign exchange via Reuters’ electronic trading system. The move gives Bank of China, Bank of Communications, China Construction Bank and the Industrial and Commercial Bank of China access to about 40 spot currency pairs traded the system. Some of the banks had already signed up with EBS, Reuters’ main rival in the inter-dealer market. Until recently, onshore Chinese banks could only trade non-renminbi currency pairs via the China Foreign Exchange Trade System, a dealer-to-bank platform that boasts just ten market-makers and far less liquidity than Reuters’ global system. The move coincides with increased sabre-rattling on Capitol Hill about China’s foreign exchange regime, with John Snow, the US Treasury secretary, hinting earlier this month that his department was likely to formally accuse China of being a “currency manipulator” in its next report on trade and exchange rates. China has allowed the renminbi to appreciate by just 0.8 per cent since a 2.1 per cent revaluation of the currency in July 2005. As such, the recent moves by Chinese banks to enter the wider FX markets will be seen by some as another small sign that China is slowly liberalising its foreign exchange regime and preparing its domestic banks for a less regulated trading environment. “This is another indication the market is opening up,” said one currency analyst. “China can say ‘stop moaning, we are developing our system at our own pace’.” However, simultaneously, there are signs that Chinese banks and exporters are still woefully unprepared for the advent of a freer-floating currency that would move by more than a fraction of a percentage point a day. Yesterday only five deals were completed on China’s onshore forwards market, according to Tony Norfield, global head of FX strategy at ABN Amro, and even that is more activity than is seen on many days. “Five is a relatively high number – on some days there are only one or two deals done. That is fairly depressing,” said Mr Norfield. In theory there should be literally thousands of Chinese exporters keen to hedge their forward foreign currency exposure, particularly with the offshore non-deliverable forwards market pricing-in a 12-month renminbi rate of Rmb7.6955, an effective appreciation of 4.4 per cent from yesterday’s closing price of Rmb8.0475.