Limits on bills house USD interbank borrowing eased
30 December 2011
To ensure unimpeded channels of US dollar liquidity, and increase bills houses’ willingness to underwrite foreign-currency bills, the Central Bank of China (CBC) has recently approved an increase in the US-dollar interbank money market borrowing ceiling for bills houses’ underwriting of foreign bills.
Under the original regulation, bills houses could borrow US dollars from the interbank money market only when underwriting US-dollar bills in the primary market, and the ceiling of such borrowing was set at 60 percent of the underwriting amount. Bills houses underwriting repurchase agreements (RPs) might suddenly face foreign-currency funding gaps if unable to participate in secondary market foreign-currency interbank borrowing, and hence could be exposed to fund procurement risk. This would affect their willingness to underwrite foreign-currency bills.
Taking account of bills houses’ foreign-currency fund needs, the CBC has relaxed the ceiling on their US-dollar interbank borrowing to 80 percent of the face value of their US-dollar bill holdings, up to a maximum amount of US$50 million. In addition, the CBC has also stipulated that bills houses may not convert US dollars borrowed from the interbank market into NT dollars, to avoid their using this channel for speculation on the NT dollar exchange rate.
