China official: forex hedging needed
Derivatives needed before yuan revalued-report
By CBS MarketWatch
Last Update: 4:38 AM ET Nov. 10, 2004
The official China Securities Journal said Chang Qing, vice president of the China Futures Association, said speculation about yuan revaluation will leave China vulnerable to the whims of the global currency markets when the yuan is finally unshackled, AFX-Asia reported.
"Increasingly liberalized global capital flows and China's intended shift from the de facto dollar-yuan peg to a more flexible forex rate means that the risks of fluctuations in the exchange rate are rising," Chang was quoted as saying.
"The market now desperately needs some financial derivatives to hedge against forex risk, and the development of a forex futures market, including forex futures and options trading, is becoming a task of the first priority," he said.
China currently has a small, tightly-controlled onshore yuan futures market, under the People's Bank of China, with daily turnover estimated only in the tens of millions of dollars, according to AFX.
The Chicago Mercantile Exchange and China's central bank signed a memorandum of understanding in June develop the mainland foreign exchange derivatives market.
Late last month, China's central bank hiked interest rates for the first time since 1995. Chang said the move indicates that the time has arrived for forex futures trading.
"Now that China has chosen to gradually open up the capital account under its international balance of payments, the dollar-yuan peg can't hold out much longer," Chang reportedly said.
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