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China Unveils First Market Makers

China has unveiled 13 domestic and foreign banks as approved market makers in the Chinese yuan (CNY). ABN Amro, Bank of Montreal, Citigroup, HSBC and Standard Chartered Bank are the offshore institutions. Bank of China, China Construction Bank, Industrial & Commercial Bank of China, Agriculture Bank of China, Bank of Communications, China Merchants Bank, CITIC Bank, and Industrial Bank were also approved.

The move, which was expected to be implemented on the first trading day of 2006, is not unexpected as China’s State Administration of Foreign Exchange (SAFE) invited several institutions to apply for a trading license in November 2005. The institutions are approved to quote and trade CNY FX against the US dollar, Japanese yen, Hong Kong dollar and the euro.

The approvals are widely expected to lead to increased volume levels in the yuan, as well as greater volatility in the exchange rate. China revalued the yuan by 2.1% in July 2005 and allowed it to fluctuate by a daily maximum of 0.3% against the US dollar.

Prior to the move, the People’s Bank of China facilitated all FX transactions involving the yuan.

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