China's central bank to impose reserve ratio on offshore yuan accounts

A man walks past the People's Bank of China in Beijing on August 12, 2015.

China’s central bank will impose required reserve ratios on yuan deposits of offshore participant banks in the mainland in a bid to stabilise the currency. The move will take effect from January 25, according to four people familiar with the matter, who declined to be identified because the information isn’t public. The reserve ratio was previously at zero percent on offshore banks’ yuan deposits in the mainland. The deposits will now attract the same ratio as applicable to Chinese banks. Chinese Premier Li Keqiang on Friday pledged a “stable” yuan exchange rate after interbank borrowing costs in Hong Kong surged to a record as the People’s Bank of China sought to narrow its discount to the mainland rate. The offshore yuan capped its biggest weekly advance since October after the central bank repeatedly bought the currency in Hong Kong. Applying reserve ratios on offshore banks’ yuan deposits in China may raise offshore yuan rates and increase the cost of short-selling the currency in the short term, said Zhou Hao, an economist at Commerzbank AG in Singapore. The offshore yuan market will also be adversely impacted because of uncertainties related to capital and policies, he said. The PBOC started to include mainland yuan deposits of offshore participant banks in reserve requirements last year, at a zero percent rate. Yuan deposits held by clearing banks on the mainland will also be subject to the reserve ratios, the people said. Offshore participant banks don’t include foreign central banks and other official reserve management institutions, international financial organisations and sovereign wealth funds, they said. (Bloomberg News)

More from Business News

Blogs