Foreign currency swaps as hot money into covert channels

Although the foreign Exchange Bureau is constantly stepping up its regulation of Cross-border capital flows, international hot money has created a lot of alternative means, and cross-border currency swaps have become the tools they use, and Hong Kong has become a transit point for these funds. Mr Donggao, a foreign investment bank, told reporters he had recently led a swap. One of his clients is a Hong Kong American fund, suffering from the lack of appropriate channels to bring money into China, just another of his clients, a foreign-funded institutions want to remit a sum of money. Mr. Gao led two institutions to sign a currency swap deal in which US funds crossed a dollar in Hong Kong to a foreign agency that paid an equivalent amount of renminbi to the US fund in the country. Such a resell, want to come in, want to go out, and this way is difficult to be found by the regulatory body.　　Under the press, Mr. Gao admitted that the amount of the swap transaction amounted to billions of yuan. "There is a lot of money in the Hong Kong market to stare at the domestic, on the one hand, a lot of domestic restrictions are gradually liberalized, more importantly, they think the domestic asset prices are undervalued, many funds also want to borrow small not to reduce the opportunity to earn a quick money." Mr. Gao said, however, the foreign Exchange Bureau is now very strict in its management of capital flows, which can only be accessed in such a interchangeable manner.　　Not only they, but even some Chinese financial institutions are leading the operation, and each business volume is not a decimal.　　It is understood that because of the difficulty of regulation of foreign currency swaps, it is difficult to estimate the amount of hot money entering from this channel, but it is certain that its impact is gradually emerging. Hong Kong's financial markets have been under greater pressure recently because of the huge amount of money they want to transiting into China. In the past six weeks, the average weekly flow of capital to Asia, especially to Hong Kong, has reached the weekly inflow of capital in the 2007 bull market, leading to a low overnight lending rate of 0.05% per cent in the interbank markets in Hong Kong, the lowest level since November 2004, according to Citigroup's research report.　　This shows ample liquidity. To cope with the menacing hot money, the HKMA was forced to continue to inject HK $ billions of a day into the money market. The chief executive of the Hong Kong HKMA, Mr Joseph Yam, had previously disclosed that 43.9 billion dollars had been purchased since January, while hot money had not slowed inflows.　　Many experts believe that a large proportion of the funds entering Hong Kong are to transiting Hong Kong into the mainland. Lu Commissar, chief economist at Societe Generale Capital Operations Center, believes that there are signs of hot money inflows in the near future. This is mainly reflected in Hong Kong, and Hong Kong reflects the situation in mainland China. The HKMA has been offering foreign exchange bonds for some time, simply to hedge overseas funds flowing into the Hong Kong market. A large part of the money flowing into the Hong Kong market is not in the form of H-shares, but in the mainland through some channels.　　But this is not to say that it is a massive counter-offensive of hot money. "Foreign exchange controls tend to be more focused on monitoring cross-border movements, and objectively speaking, this approach does not reflect cross-border changes and is signed in Hong Kong, strictly speaking, there is no violation, just a policy of the ball. "Lu Commissar said," This phenomenon may be more prominent in the future, because the timing is right, no matter what our domestic economic outlook is, overseas institutions generally expect the Chinese economy to be a solo show, while many domestic companies feel it is a good time for overseas mergers and acquisitions, but many companies find it difficult to get enough foreign exchange quotas. So I think this phenomenon will become more prominent in the future. "If there is money laundering, this is how many underground banks operate." "Zhaoqingming, senior researcher at CCB Research Department. However, he thinks this should not be much.　　Moreover, the transaction as a whole is a derivative transaction, there will be a rolling arrangement, will not produce actual flow, the harm should be relatively small. "While our exchange controls are effective, we should not be overly convinced that such controls are completely airtight." If we do not talk about underground banks, this kind of interchange is also enough to make the efficiency of control problems. Lu County said, although this operation is not enough in the overall macro-level of capital control to form a huge impact. But it shows that regulators do not follow the development of the situation to adjust the control method, the efficiency of regulation will be drastically attenuated. Of course, such a regulatory policy is only a short-term strategy, and longer-term strategies should allow the renminbi to fluctuate more sharply and eventually move to free-floating. When a country's currency is a floating exchange rate, theoretically it does not need any foreign exchange reserves, nor does it require capital controls.