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China’s Central Bank Study Hints at Introduction of FX Futures

The People’s Bank of China (PBoC) has allocated resources to study the country’s futures markets, which are all commodities-based and run by exchanges in Dalian, Zhengzhou and Shanghai, according to the official Xinhua News Agency.

The move has raised the possibility that the PBoC may soon be considering the introduction of currency futures. However, state media has linked PBoC’s increased futures interest to its role as a member of a high level committee tasked with refining futures industry laws, particularly for financial futures which are expected early next year when the country’s first stock index futures contract will be listed.

Nevertheless, FX analysts say that should stock index futures be successful from a regulatory and user standpoint, currency futures as well as bond futures may be next in line. Additionally, PBoC’s banning of banks from quoting prices in offshore non-deliverable forwards (NDFs) last month will make a local currency futures and forwards market more attractive.

China has recently seen several developments in currency futures including the Chicago Mercantile Exchange’s (CME) mid-year launch of Renminbi futures against the US dollar, euro and yen (See Squawkbox, June 26).CME also has a deal with a PBoC unit, the China Foreign Exchange Trading System (CFETS), to work on allowing Chinese financial institutions and investors to gain access to electronic trading of CME FX and interest rate products.

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