China issued rules for trading of certificates of deposit on the interbank market, a step toward loosening control over interest rates as the government pares its role in the world’s second-largest economy.
Markets will determine the certificates’ interest rates and prices, according to a Web posting today by the People’s Bank of China in Beijing. The rules, effective tomorrow, set the CDs’ minimum size at 50 million yuan ($8.2 million), with the Shanghai Interbank Offered Rate as a reference for pricing. The PBOC said issuers must meet other requirements, without elaborating.
Starting a market for the certificates is part of the government’s plan to eventually remove the cap on rates paid to savers, after authorities in July eliminated a floor on lending rates. The Communist Party pledged last month to give markets a “decisive” role in the economy as part of the broadest policy reforms since the 1990s.
The PBOC didn’t explicitly say when trading of the certificates would begin. Other future steps in interest-rate liberalization include introducing a deposit-insurance system and having a new benchmark rate such as Shibor replace the state-managed deposit rate.
The rules say fixed-rate certificates can have maturities of one month to one year and floating-rate CDs can be for one, two or three years. The regulations say issuers are prohibited from buying their own CDs.
Under separate guidelines published Dec. 2, the central bank plans a pilot program in the Shanghai free-trade zone to allow qualified financial institutions to issue large-denomination, tradable certificates of deposit as part of efforts to liberalize interest rates.