CHINA has launched currency-swap trading in the interbank foreign-exchange market to provide companies with a safety net, the central bank said yesterday.
The nation will allow yuan currency swaps with five currencies - the greenback, the euro, the yen, the Hong Kong dollar and the British pound, according to a statement posted on the bank's Website.
Domestic institutions qualified to trade yuan forwards are allowed to engage in swap transactions after they register with the State Administration of Foreign Exchange. The rules took effect yesterday.
"The launch of currency swaps is designed to help develop the foreign-exchange market and satisfy the domestic needs to hedge exchange risks," the central bank said.
Currency swaps are an exchange by two borrowers with opposing needs of a certain amount of currency through a lender.
The reference for yuan interest rates in currency swaps is the benchmark interbank lending market rate or the benchmark lending and borrowing rate. The interest rate reference for foreign currency swaps is decided through negotiations, according to the statement.
The swap will help companies lock in risk and avoid future losses, analysts said.
"The move helps Chinese companies guard against risks led by changes in exchange rates as flexibility of the Chinese currency increases," said Li Mingliang, an analyst at Haitong Securities Co.