China suspends forex business for some foreign banks

SHANGHAI: China's central bank has suspended at least three foreign banks from conducting some foreign exchange business until the end of March, three sources who had seen the suspension notices told Reuters on Wednesday.

Included among the suspended services are liquidation of spot positions for clients and some other activities related to cross-border, onshore and offshore businesses, the sources said.

The sources, speaking on condition that the banks were not named, said the notices sent to the affected foreign banks by the People´s Bank of China (PBOC) gave no reason for the suspension.

The PBOC did not immediately respond to a request for comment.

The measure follows a slew of steps taken by the Chinese government to keep the yuan stable since it devalued the currency in August.

The spread between the onshore and offshore markets for the yuan, or renminbi, has been growing since the devaluation, making it increasingly difficult for the central bank to manage its currency and stem an outflow of capital from an economy that is facing its slowest growth in 25 years.

The sources told Reuters that authorities had warned the banks that if they engaged in lucrative carry trade, taking advantage of the different exchange rates, the central bank would move to further block arbitrage channels.

"This is part of the PBOC's expedient means to stabilise the yuan's exchange rate," said an executive at a foreign bank contacted separately.

The sources said the banks might have been targeted due to the large scale of their cross-border forex businesses.

An economist at a top government think-tank said the measure was a temporary bid to curb demand for dollars that has been strengthening towards the end of the year as the gap between the onshore and offshore yuan exchange rates widens.