Companies Use More Derivatives to Offset Yuan Fluctuation
What’s new: Chinese companies are using more financial derivatives to hedge risks from the yuan’s fluctuation, indicating greater capacity to manage foreign exchange risks, a senior government official said.
Between January and March, newly signed forward contracts for foreign exchange settlements and sales and the exercise of options totaled $290.4 billion, a 95% rise from the average amount for the same period in 2019 and 2020, according to Wang Chunying, a spokeswoman for the State Administration of Foreign Exchange (SAFE).
The growth of forex derivatives outpaced that of trade and foreign exchange settlements and sales during the same period, reflecting increased use of risk hedging tools, Wang said Friday at a press conference.
The context: China’s foreign exchange regulator has encouraged companies to better use financial derivatives to counter forex risks. “Companies should be more aware of forex risk management while banks should see the value of the business,” Wang said.
Wang said increased flexibility in China’s yuan exchange rate can release market pressures and prevent expectations that it will move only one way.
She said the "firewall" of China's balance of payments is relatively strong, providing more resources to protect against external shocks. Both the current account and direct investment have maintained stable surpluses, and a steady inflow of capital will help make the balance of payments more stable and resilient, Wang said.
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