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China Central Bank Cuts Off Forex Business

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China’s central bank has reportedly cut off its foreign exchange business from three foreign banks, according to unnamed sources, reports said Wednesday (Dec. 30).

The sources said three foreign banks are barred from China’s foreign exchange service until the end of March. Those services include cross-border services and others, reports said. The People’s Bank of China is said to have sent notices to the banks, though did not give the institutions a reason for the action.

[bctt tweet=”3 foreign banks are barred from China’s foreign exchange services.”]

Reuters reported that it had been separately told that Deutsche Bank was one of those banks barred from continuing some foreign exchange business with China, more unnamed sources said.

According to reports, the recent yuan devaluation has created a catalyst, making it more difficult for the central bank to manage the currency. China is in the midst of a currency outflow, coinciding with slowing economic growth.

One bank executive, unnamed by reporters, said that the People’s Bank of China’s recent decision to halt forex business with other banks overseas is part of an effort “to stabilize the yuan’s exchange rate.”

Another source, reportedly an economist at a government think tank, said the action is likely an effort to reduce the demand for the U.S. dollar.

“They hope to ease foreign exchange buying pressure and ease depreciation pressure on the yuan,” the unnamed economist told Reuters. “But I don’t think the authorities will take very strong capital control measures; they are likely to reinforce the existing measures.”

Some sources said that the banks targeted by the central bank may have been chosen because they conduct a high volume of business in cross-border foreign exchange operations.

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