China forex panel proposes cap on banks' proprietary trading

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A central bank-led self-regulatory group that helps to oversee China’s foreign exchange industry has asked commercial banks to cap the size of their proprietary trading accounts, five sources with direct knowledge of the matter said on Friday. One of the sources said the aim was to limit financial institutions’ speculation on the yuan when the Chinese currency has been strengthening.

Beijing is keen to protect its export sector as domestic demand and economic growth momentum show signs of slowing. Market observers said the request was the Chinese regulatory bodies’ latest attempt to stabilise the exchange rate and may not be the last.

“They will find ways and other measures to thwart the market’s ability, capacity and willingness to go long renminbi,” Stephen Jen, who runs hedge fund Eurizon SLJ Capital, said. He noted the yuan in trade-weighted terms was the strongest performing currency in recent months, outpacing even the US dollar.