On Friday, China's central bank, the People's Bank of China PBOC executed an inaugural foreign currency swap with ten of the country's domestic banks, including the four state-owned commercial banks that dominate the banking system, and a number of policy banks. Under the terms of the $6 billion deal, which is to be repeated on a fortnightly basis, the Chinese central bank sells the dollars at the prevalent spot rate to the domestic banks, which will swap the dollars back into Rmb in 12 months time, at a rate set at Rmb 7.85 to the dollar.
This rate compares to a spot rate of 8.0805 and a non-deliverable forward rate used...
