Laws of the People's Republic of China

The People's Bank of China

Circular on Further Improving the Management of the Trading Prices in the Inter-bank Foreign Exchange Market and the Quoted Exchange Rates of the Foreign Exchange-Designated Banks

Yin Fa [2005] No. 250

The People's Bank of China releases this Circular to facilitate the development of the foreign exchange market, allow foreign exchange designated banks greater discretion and flexibility in setting rates, meet the needs of enterprises and foreign exchange designated banks to hedge against exchange rate risks and enhance monitoring of RMB exchange rate movements.

The Circular includes the following:

1.

In the inter-bank foreign exchange market, the daily band of RMB spot rate against non-US dollar foreign currencies is hereby widened to 3 percent around the central rate announced by the People's Bank the same day.

2.

The spread between the RMB/USD selling and buying rate published by the foreign exchange designated banks with their customers shall not exceed 1 percent of the central rate announced by the People's Bank of China, herein referring to the closing rate of the previous day, i.e. (selling rate - buying rate)/ central rate *100%<=1%. At the same time, the spread between RMB/USD cash selling and buying rates shall not exceed 4 percent of the central rate, i.e. (cash selling rate - buying rate)/ central rate *100%<=4%. The foreign exchange designated banks may quote to their customers US dollar buying and selling rates and cash buying rate at discretion within the above bands.

3.

The limits on the spreads of buying and selling rates for non-US dollar currencies against RMB are hereby removed. The foreign exchange designated banks may quote to their customers these rates at their discretion.

4.

The foreign exchange designated banks may negotiate foreign exchange buying and selling rates and cash buying and selling rates with their customers, provided that the negotiated rates of RMB against US dollar shall not exceed the above mentioned limits.

5.

The head-offices of policy banks, state-owned commercial banks and share-holding banks shall report to State Administration of Foreign Exchange (SAFE) before 9:00am each business day the following quoted rates: the opening rates of the same day as well as the opening, highest, lowest and closing rates of the previous day. The branches of state policy banks, state-owned banks and share-holding banks, urban commercial banks, rural credit unions (including rural commercial banks, rural cooperative banks), foreign banks and other financial institutions shall report the above rates to local offices of SAFE.

6.

Foreign exchange designated banks shall establish sound internal management rules and risk management systems with regard to quoted foreign exchange rates. These banks shall revise their management rules for their whole institution (including pricing mechanism, risk management methods, internal controls and intra-net technical standards) according to this Circular and report thereof to SAFE and its local offices for record within one month after this Circular becomes effective. Head-offices of policy banks, state-owned commercial banks and share-holding commercial banks shall report to SAFE head office the above-mentioned information and copy to SAFE's local offices if they are not located in Beijing. Urban commercial banks, rural credit unions (including rural commercial banks and rural cooperative banks), foreign banks and other financial institutions shall report theirs to the local offices of SAFE.

7.

SAFE offices at all levels shall strengthen monitoring and management of the listed rates of foreign designated banks in their region and report to the upper level administration of any problems occurred.

8.

This Circular becomes effective as of today, and shall prevail when it contradicts with previous rules and regulations.

The People's Bank of China

September 23, 2005