Yuan Forwards Advance as China Opens Up Repo Market, Euro Gains

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Yuan forwards rose to a one-week high as China opened an interbank loan market to some offshore lenders, encouraging greater usage of the currency worldwide.

Overseas branches of its biggest banks, and possibly some foreign lenders, will be able to borrow yuan via repurchase agreements and use the proceeds abroad, the People’s Bank of China said in a statement. The euro advanced to a two-week high Wednesday, lessening demand for dollars, as European Central Bank President Mario Draghi said record monetary stimulus is filtering through to the economy.

“Opening up of the repo market will increase the yuan’s usage among offshore banks and works toward China’s goal of internationalizing the currency,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Co. in Hong Kong. “The improved conditions in Europe are pressuring the dollar, which is positive for the yuan.”

Twelve-month non-deliverable forwards on the yuan climbed 0.09 percent to 6.2390 a dollar, the strongest level since May 25, as of 4:39 p.m. in Hong Kong, data compiled by Bloomberg show. In Shanghai’s onshore market, the yuan dropped 0.05 percent to 6.2010, according to China Foreign Exchange Trade System prices.

All overseas yuan clearing and settlement banks participating in China’s interbank bond market can now use the repurchase facilities, and they can use the money outside of mainland China, the PBOC said. The change comes as China seeks to make the yuan a global currency, and is bolstering the case for the International Monetary Fund to grant the yuan reserve status later this year. The currency failed to qualify in a 2010 review as it was deemed not “freely usable.”

The PBOC’s move will make it cheaper for offshore banks to obtain yuan, boosting the attractiveness of assets denominated in the currency, Chen Kang, a Shanghai-based analyst at SWS Research Co., wrote in a note Thursday.

The central bank strengthened the yuan’s daily reference rate by 0.02 percent to 6.1164 a dollar, the strongest level in almost two weeks. The gap between the onshore yuan and the fixing was 1.4 percent, within the 2 percent daily limit.

— With assistance by Tian Chen

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