PBOC discloses currency forward positions

China’s central bank revealed its short foreign-currency positions in forwards and futures for the first time, a decision that Australia & New Zealand Banking Group Ltd. said will help show the extent of the monetary authority’s support of the yuan.
The People’s Bank of China held USD28.9 billion of such positions with commercial lenders as of end-February, according to a statement posted on its website. It added that it made short-foreign currency trades in derivatives with commercial lenders to meet demand from companies looking to hedge overseas liabilities.
“It looks like this is the first time they are reporting their forwards book, and we finally get an idea of their forwards intervention,” said Khoon Goh, a senior foreign-exchange strategist at ANZ. “It indicates that their intervention activity is a lot more than we had previously estimated in February.”
The nation’s currency reserves fell at a slower pace in February, prompting speculation that the central bank was using derivatives – which don’t immediately show up in the data – to prop up the yuan. The figures don’t necessarily give a comprehensive picture because non-PBOC institutions may absorb flows, Goldman Sachs Group Inc. economists wrote in a March 7 note.
The world’s largest currency hoard dropped by $28.6 billion to $3.2 trillion in February, the smallest decline since June and less than the $40.9 billion decrease predicted by economists surveyed by Bloomberg. The central bank burnt through $513 billion of the stockpile last year to support the yuan since a surprise devaluation in August.
Hedging demand from companies has increased since last year as the yuan became more flexible against the dollar, the PBOC said, adding that it will keep providing such products based on real needs when the forwards contracts mature. Bloomberg