New Chinese forex crackdown to hit corporate hedging

Despite new reserve requirement, dealers say ‘maturity’ in risk management is here to stay

Dealers fear a move by the Chinese authorities to reinstate a deposit requirement on foreign currency derivatives could slow a recent pick-up in hedging from local corporates, despite warnings from regulators that firms need to do more to brace for future market volatility.

The People’s Bank of China announced on August 6 that banks must put up a zero-interest, US dollar-denominated deposit at the central bank representing 20% of the notional value of all new forex forwards, swaps and options