Offshore Yuan Advances as Mooted Tax Seen Curbing Bearish Bets

The offshore yuan rose for the first time in four days after China’s foreign-exchange regulator said the nation may...

The offshore yuan rose for the first time in four days after China’s foreign-exchange regulator said the nation may roll out a tax to help curb speculative currency trading.

A levy on foreign-exchange transactions, or so-called Tobin tax, is one of several tools that policy makers have been studying to manage capital flows, Wang Yungui, a director with the State Administration of Foreign Exchange’s General Affairs Department, told a news briefing in Beijing on Tuesday. The central bank has drafted rules for such a levy, and the initial rate may be kept at zero to allow authorities time to refine the regulations, people with knowledge of the matter said last week.

“The tax will most likely be imposed on market players who make frequent and speculative trades that short the yuan,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “So a levy will help reduce depreciation pressures in the short run. But in the long run, it hurts the yuan’s internationalization push because it makes trading the currency costlier.”

The yuan traded in Hong Kong advanced 0.04 percent to 6.4913 a dollar as of 9:56 a.m. local time. That snaps the currency’s biggest three-day decline since January. The People’s Bank of China raised its daily reference rate, which restricts onshore moves to 2 percent on either side, by 0.05 percent to 6.4936. A Bloomberg replica of the CFETS RMB Index, which China uses to measure the yuan’s performance against 13 currencies, has fallen about 2.8 percent this year to 98.04.

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Federal Reserve interest-rate increases will spur capital outflows and pressure currency management, SAFE’s Wang said. Traders put the chances of an April move at 10 percent on Tuesday, according to futures data compiled by Bloomberg. The odds of a single 25-basis-point move by December were at 76 percent, climbing from 68 percent at the end of last week. The calculation assumes the effective fed funds rate will average 0.625 percent after the Fed’s next increase.

The PBOC injected 80 billion yuan ($12.3 billion) via seven-day reverse-repurchase agreements Wednesday, bringing the offerings to 290 billion yuan so far this week. The seven-day repo rate, a benchmark gauge of interbank funding availability, fell six basis points to 2.26 percent, according to weighted average prices from the National Interbank Funding Center.

–With assistance from Helen Sun To contact Bloomberg News staff for this story: Tian Chen in Beijing at tchen259@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Allen Wan, Sarah McDonald

By: Bloomberg News

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