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China to Take Steps if Forex Market Fluctuations Increase

China has vowed to roll out measures if Forex Exchange (FX) market fluctuations become too big.

The country’s FX regulator, the State Administration of Foreign Exchange, announced that the country is prepared to take counter-cyclical measures if the current policy by major world economies does not address the concern of FX market fluctuations. Confirming the announcement, the spokesman of the regulator, Wang Chunying, said that China will roll out measures at an appropriate time. 

Maintaining currency market stability

The regulator’s focus will be inflationary pressures in the United States. China is monitoring the pace at which the Federal Reserve is tightening its currency policy. It will guide China’s proactive involvement and further policy implementation to maintain market stability.

Wan expressed worry that there could be a trigger of turmoil in global prices because of the Federal Reserve’s plan to reduce asset purchases. She further added that any shift in global central banks will not impact the condition of China’s balance of payments.

China’s yuan at four-month high

Wan defended the recent strength of the yuan after hitting the 6.4 yuan per dollar threshold. This is the highest it has been in four months. According to Wan, “the strength was normal and driven by market forces.”

She added that the yuan experienced volatility in both directions this year, which has been a major influence in forex trading. Like many major currencies in the FX market, the yuan depends on economic conditions in China and abroad.

Tightened rules

This is not the first time China is tightening rules to protect its currency. In May, the central bank adjusted the FX reserve requirements ratio from 5% to 7%. Market participants interpreted this move as a deliberate attempt to stem the gains of yuan currency in the global FX market. This adjustment discourages any strong one-way betting for or against the yuan on trading platforms.

Banks in China are pressured to trade in small ranges in a bid to curb speculation. This is a move that was preceded by the banning of cryptocurrency trading and restricting property speculation.  The move by China contrasts that of the United States, which is poised to withdraw monetary stimulus.

Earlier in September, brokers in China were forced to drop currency forecasting to abide by the pressure of the Chinese government to reduce forex speculation. In addition, companies and banks are also warned as possible targets of volatility.

President Xi Jinping

China’s President, Xi Jinping, is bidding a third term in office. Xi is considered a powerful leader, only second to Mao Zedong. Observers claim that his third presidential bid is anchored on a mini-revolution to curb the excess capitalism that is creeping in China and return to its idealistic socialist roots. Therefore, the strict rules might not be a result of the recent US dollar rebounds in the financial market. Currency traders in China say that trading has become more intense as there is stricter scrutiny from the regulator.

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