SHANGHAI/BEIJING – A self-regulatory body led by the central bank and responsible for overseeing China’s foreign currency industry asked commercial banks to limit their trading accounts. Five people with direct knowledge said Friday.

According to one source, the goal was to reduce speculation by financial institutions on the Yuan during times of strengthening Chinese currency.

Beijing wants to preserve its export sector, as both domestic demand and economic growth are slowing.

According to market observers, the Chinese regulators’ recent attempt at stabilizing the exchange rate was not the first.

Stephen Jen from hedge fund Eurizon SLJ Capital stated that they will devise ways and other means to stop the market being able, able, and willing to long renminbi.

He pointed out that the yuan was in trade-weighted dollars the most successful currency, surpassing the U.S. Dollar.

China’s Foreign Exchange Market Self Discipline Method is a panel of commercial and central bank representatives. This mechanism is administered by the People’s Bank of China.

According to sources, it has informed banks that their volume of proprietary trade will rise by 50% in the year ahead or surpasses 15 times what they do for clients.

Some sources within the banks spoke only on condition that they remain anonymous because they are not authorized to talk about this issue publicly. The measure was not effective at the time.

In a late Thursday statement, the regulator stated that Chinese financial institutions should provide currency hedging services to businesses but not assist them in speculation.

China’s financial regulators have urged companies to protect themselves against currency risks as the central bank gradually loosens its control of the yuan, but are struggling to convince local businesses to hedge https://www.reuters.com/business/chinas-regulators-struggle-sway-companies-currency-risk-2021-06-22.

China’s currency, which is tightly managed by the United States of America, has increased nearly 3% since March compared to the U.S. Dollar. This has occurred despite the fact that the dollar rose against all other currencies.

Analysts on the market and economists at the bank attributed China’s increasing trade surplus, which was in part due to an export boom that occurred during the pandemic and steady capital inflows.

An analyst says that foreign investors can also be assured of confidence when the exchange rate remains stable, as Chinese authorities are keen to encourage international investment in Chinese stocks and bonds.

Jen, Eurizon SLJ Capital’s Jen stated that while past Chinese attempts to stop yuan strength were not successful in the short-term, they did eventually work longer.