China forex regulator eases restrictions on bank FX positions

A clerk counts Chinese yuan and U.S. dollar banknotes at a branch of Bank of China in Taiyuan, Shanxi province, China, January 4, 2016. REUTERS/Jon Woo

China’s foreign exchange regulator said on Friday it will allow banks to issue more FX-related products for risk-hedging purposes.

That includes allowing banks to hold bigger short-dollar positions at the end of the day, the State Administration of Foreign Exchange (SAFE) said in a statement on its website.

The regulator said the change would help maintain onshore liquidity of foreign currency and help reduce exchange rate risk.

The adjustment comes as the yuan remains under depreciation pressure as Beijing remains in a monetary easing stance while the U.S. Fed contemplates raising rates, which would further support the dollar.

That provides policy space for SAFE to allow banks more latitude shorting the dollar.

China will further step up monitoring of trade-related investment, the regulator also said.

Trade transactions have in the past been used as a mechanism to conceal capital inflows and outflows.