PBoC suspends domestic cash transfers, liquidity issues again?


FXstreet.com (Bali) - The People’s Bank of China has issued an order to commercial banks to halt cash transfers, which will result on a 3-day suspension of domestic renminbi transfers, while 9 days of suspensions on conversions of renminbi to foreign currency.

Citibank notice to customers

As Forbes reports, this notice, for instance, appears on the online portal for Citibank unit for its China customers:

1. Due to the system maintenance of People’s Bank of China, Domestic RMB Fund Transfer through Citibank (China) Online and Citi Mobile will be delayed during January 30th 2014, 16:00pm to February 2nd 2014, 18:30pm. As to the fund availability at the receiving bank, it depends on the processing requirements and turnaround time of the receiving bank. We apologize for any inconvenience caused.

2. During Spring Festival, Foreign Currency Transfer Transaction through Citibank (China) Online and Citi Mobile will be temporally not available from January 30, 2014 18:00pm to February 7, 2014 09:00am. We apologize for any inconvenience caused.

China's liquidity running dry?

According to Gordon G. Chang, Contributor at Forbes: "The specific reason given—“system maintenance” at the central bank—is preposterous. It is not credible that during the highest usage period in the year—the weeklong Lunar New Year holiday beginning January 31—the central bank would schedule an upgrade and shut down cash transfers."

Speculation continues to point towards Chinese money market running low of cash ahead of the Luna New Year holiday period. While demand for cash is on the rise around this time, proper planning should definitely prevent such iliquid episodes from occurring unless the problem goes deeper.

As Chang notes: "Today’s “system maintenance” notice is a sign of a fundamental problem. Banks, in short, need cash to rollover ever-increasing amounts of nonperforming loans and wealth management products. This month, cash needs are even higher than normal because of the impending default of the Credit Equals Gold wealth product scheduled for January 31."

Chang draws the following conclusions: "Banks are evidently scrambling for cash. They have, in the past, resorted to desperate maneuvers at the ends of calendar quarters to meet regulatory requirements. The current crunch is even more alarming because it cannot be occurring for quarter-end reasons. Something is very wrong in China at the moment. Banks’ apparent need to conserve cash, coming just weeks after the last incident, looks ominous.

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