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Forex market needs fast growth, reform
By Xiao Zhang (China Daily)
Updated: 2004-06-11 22:07 China's foreign exchange authorities said on
Friday the nation's forex market needs faster growth and pledged efforts to
propel its development.
Hu Xiaolian, deputy director of the State Administration of Foreign Exchange
(SAFE), also said the faster development of the forex market should be
co-ordinated with greater convertibility of the local currency, or renminbi, and
further improvements in the mechanism through which the currency's exchange rate
is determined.
Ten years after China established a nationwide interbank forex market in a
major reform, the market is still underdeveloped when compared to developed
countries, Hu said in a speech published on the administration's website on
Friday.
Immature market participants and systematic constraints such as capital
account controls which restrict demand and supply, as well as inadequate
exchange rate flexibility are among the major reasons behind the low development
level of the market, he said.
In building a developed forex market, Hu said measures will include allowing
non-banking financial institutions and large corporate groups to enter the
interbank market.
This would introduce market makers, foster intermediaries like brokers and a
forex exchange, as well as enhance supervisory efficiency.
Product innovation will also speed up, he said. That will include allowing
transactions between foreign currencies, promoting forward transactions between
banks and other businesses, and launching derivatives like swaps, futures and
options.
Faster market construction will require fundamental stability in the exchange
rate for the yuan, along with further efforts to explore a better exchange
rate-forming mechanism that fully reflects demand and supply, Hu said. He added
that there should be further reform moves towards the creation of a benchmark
exchange rate system.
The regulator said greater convertibility of renminbi should be pursued
simultaneously, which would include reforming the mandatory forex settlement
system to facilitate trade. This would allow banks to play a bigger role in
product development and pricing, and promote capital account convertibility of
renminbi in an orderly manner.
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