Foreign Capital Is In Conflict With The Central Bank Of China.

He accidentally discovered that when the spot rate of RMB approached the limit, the foreign exchange gap within the renminbi tended to shrink to 40-50 basis points.

As a result, Arbitrage Behavior began to dissipate, leading to a certain degree of rebound in spot exchange rate.

However, because of the capital control measures adopted within the territory, it is no easy task for enterprises to complete the above arbitrage operation.

For example, how to pfer the large amount of US dollars from domestic purchase to foreign exchange to the Hongkong market for foreign exchange settlement is a difficult problem.

The director of a trade company revealed that it was not difficult for some domestic enterprises.

Their usual practice is to set up a "window" company in Hongkong. By signing a series of trade contracts with the domestic enterprises, the company can quickly remit the US dollar to the Window Company account for arbitrage.

Even some enterprises, in order to speed up arbitrage trading, first let foreign Window Company sell dollars in their hands, and then make up the gap with the US dollar funds purchased from foreign exchange.

In February 2nd, the spot exchange rate of RMB against the US dollar fell to 6.2604, which was 1.986% lower than the middle price of the day, and once again approached the lower limit of 2% of the single day exchange rate set by the central bank.

This is the fifth time that the RMB spot rate has approached the limit in the past eight days.

A foreign exchange trader at a Hongkong bank admits that its behind the scenes promoter is the increasingly intensified arbitrage of foreign exchange in the renminbi.

Since last Monday, he has found that more and more domestic enterprises and financial institutions are buying large quantities of foreign exchange (buying US dollars to sell renminbi) from the domestic RMB market, and then rapidly pferring these US dollar funds to Hongkong without foreign capital forward exchange (NDF) market to settle foreign exchange (selling US dollars to buy Renminbi), thus acquiring renminbi's domestic foreign exchange earnings.

"There are basically more than 80 basis points per day.

Profit.

"He said.

This means that if a company invested $100 million in the arbitrage operation, it could generate at least $800 thousand a day.

However,

To some extent, the popularity of the RMB market triggered a wave of foreign exchange buying, resulting in the RMB spot exchange rate has repeatedly been down.

Many foreign exchange traders have expressed concern that if the spot exchange rate is further pushed into the limit, they may not exclude the possibility of intervention by the central bank to curb such arbitrage.

"But these enterprises seem to have taken heart."

This

Traders say that the reason why they dare to play with such arbitrage pactions is that foreign capital is struggling to depress the offshore RMB exchange rate, and a central battle is launched with the central bank that seeks to maintain a stable exchange rate.

The foreign exchange trader of the Hongkong bank bluntly pointed out that there are two quotations in the RMB exchange rate market, one is the RMB spot exchange rate quoted in the domestic market, and the other two is the offshore RMB exchange rate quoted in Hongkong's non deliverable forward foreign exchange (NDF) market.

The former reflects to some extent the intention of the central bank to manage the fluctuation range of the RMB exchange rate, while the latter represents the direction for foreign institutions to predict the future trend of the RMB exchange rate.

In the past few years, when the RMB appreciated unilaterally, even if there was a difference between the more than 100 base points, the exchange arbitrage behavior was seldom triggered.

The reason is that most institutions are more willing to hold renminbi appreciation.

However, with the recent strong appreciation of the US dollar and the slowdown in China's economy, this situation is rapidly reversing.

He recalled that in January 26th, when the RMB spot exchange rate closed for the first time, the RMB exchange rate in Hongkong NDF market was 247 basis points lower than that in the domestic market, triggering many enterprises to purchase foreign exchange in the domestic market in the morning, and then pferred all the US dollars to Hongkong to settle the foreign exchange, taking the 247 basis points.

As a result of this arbitrage, the tide of foreign exchange buying in the domestic market triggered, and the spot exchange rate of the RMB immediately approached the limit.

"Since last week, similar phenomena have occurred many times."

He said that many enterprises were predicting the fall of the renminbi based on the overnight dollar index. On the same day, they first lowered the price of the renminbi in the NDF market to the US dollar, expanded the foreign exchange difference in the renminbi, then purchased the foreign exchange in large quantities in the territory, and settled the foreign exchange in the Hongkong NDF market.

He accidentally discovered that when the spot rate of RMB approached the limit, the foreign exchange gap within the renminbi tended to shrink to 40-50 basis points.

As a result, Arbitrage Behavior began to dissipate, leading to a certain degree of rebound in spot exchange rate.

However, because of the capital control measures adopted within the territory, it is no easy task for enterprises to complete the above arbitrage operation.

For example, how to pfer the large amount of US dollars from domestic purchase to foreign exchange to the Hongkong market for foreign exchange settlement is a difficult problem.

The director of a trade company revealed that it was not difficult for some domestic enterprises.

Their usual practice is to set up a "window" company in Hongkong. By signing a series of trade contracts with the domestic enterprises, the company can quickly remit the US dollar to the Window Company account for arbitrage.

Even some enterprises, in order to speed up arbitrage trading, first let foreign Window Company sell dollars in their hands, and then make up the gap with the US dollar funds purchased from foreign exchange.

He said bluntly that the benefits of this approach will not only help enterprises avoid tax on profits from overseas Window Company, but also earn corresponding exchange earnings.

The foreign exchange traders pointed out that the current participation in such arbitrage pactions is mainly domestic trade enterprises.

On the one hand, they have the demand for profit pfer. On the other hand, the amount of foreign exchange purchase is often higher than that of foreign exchange settlement, thus indirectly locking down the risk of RMB depreciation.

"On Monday morning, when there were more than 80 basis points in the RMB exchange rate, many companies were involved in such arbitrage pactions."

He said.

In his view, such arbitrage should have been concerned by the relevant departments of the central bank, but the reason why these enterprises dare to pull the candle in the fire is that they are making big efforts to reduce the RMB exchange rate and make a round of competition with the central bank that seeks to maintain a stable exchange rate.