Another day, another hint from Chinese regulators about the future opening up of the country’s capital account. The latest statement from Safe today said that it was considering introducing new foreign exchange instruments, as well as containing a pledge to push forward with selective capital account reforms.
There was no information about what these new products might be – market participants say that FX options are likely to be the next new development.
The hints about new openings in the foreign exchange market are partly directed at an overseas audience where there are already grumblings about the slow pace of change in the exchange rate since the initial fanfare (see chart). As Mark Williams at Capital Economics pointed out today in a note entitled ‘Return of the Peg’, the renminbi barely moved at all against the US dollar during July. Indeed, “the renminbi has actually weakened in trade-weighted terms since the reform was announced”. Read more