According to media, the People's Bank of China (PBoC) plans new rules to curb speculation against the renminbi with effect from 15 October 2015. The plan will require local banks trading FX forwards onshore to place 20% of the nominal dollar value of new FX forward contracts with the PBoC as reserves for a year at no interest. The rule only applies to buying USD / selling CNY forward with local banks.
"The PBoC moves to curb speculation against the renminbi by requiring reserves for buying USD / selling CNY forward. The move is seen as a signal that the CNY will not be devalued further in the near term", says Nordea Bank.
In the first half of the year, the value of new onshore FX forwards were 30% higher than at the same period last year, indicating increased use of forwards in China. The CNY value of new FX forward contracts in the first half of 2015 was just shy of CNY 1000bn (USD 132bn)
That tendency is likely to have been even more pronounced after the 11 August decision to devalue the CNY, which sparked wide-spread expectations of more devaluations coming up as a way to help the ailing economy.
CNY (onshore) and CNH (offshore) forwards increased up until last week, where the PBoC was rumoured to have intervened heavily in the onshore spot and forwards markets. The relatively big gap between CNH and CNY both in spot and forward terms could be an indication of the PBoC's interventions in the onshore spot and forward markets.
