PBoC to consider the possibility of allowing onshore banks to trade CNH

China’s central bank is considering for the first time to allow onshore commercial banks access to the offshore CNH market. This is another effort by the People’s Bank of China (PBOC) to narrow the gap between onshore and offshore yuan.

The PBOC governor Zhou Xiaochuan has said that he hopes the yuan will be fully internationalised by 2020. The broad long-term benefits of a unified currency for China are positive and will speed the progress of the RMB internationalisation.

PBoC said that it had held a meeting to look into the possibility, but no details were given by the PBoC as to what “orderly participation” might look like. The central bank is also thinking of bringing in more market participants into CNH market as the trading activities in CNH market have been increasingly less active since the central bank’s intervention in Q1.

"In our opinion, it is definitely in line with PBoC’s interest to close the gap between CNY and CNH, as a sizable spread triggers considerable cross-border arbitrage," said Commerzbank in a report.