Speech by Lin YUli, President of the CFETS at the Tenth Anniversary of the CFETS and Forum on China’s Money Market

The establishment and development of the China Foreign Exchange Trade System (CFETS) marked a new chapter in the history of China's reform and the development of a market economy. In November 1993, the 3rd Plenary Session of the 14th CPC Central Committee passed the Decision on Several Issues for Establishing a Socialist Market Economy System by the Central Committee of the CPC. In March 1994, the People's Bank of China (PBC) decided to set up the CFETS in Shanghai to meet the demands of the country's FX administration system reform. The CFETS officially started operation on April 4 of the same year. From then, China's interbank market has grown from small to large and has expanded its business from the mainland to Hong Kong. Its financial infrastructure improves constantly, and market operational efficiency rises with each passing day. All these historic evolutions and advances have laid a solid foundation for a national unified interbank market.

Over the past ten years, under the direct leadership of the PBC and the SAFE, with great support from the central and local governments, and also with the joint efforts of all the market participants, the CFETS has fulfilled the obligations prescribed by the PBC and devoted itself to establishing and improving a national unified, diversified, and highly efficient money market system. Under the guideline of using "multiple technological means and trading patterns to meet market demands of various levels", and with respect to market principles, the CFETS carries out constant innovations of service content, service means, and market mechanisms, working hard to provide market members with qualified services. By using advanced electronic information technology, the Internet and special line network, the CFETS has set up the three service platforms of trading, information and supervision based on the interbank FX, funding and bond markets. The CFETS thus plays an increasingly important role in: facilitating financial institutions' managing liquidity and adjusting liability/asset structures; improving the RMB exchange rate forming mechanism; supporting RMB exchange rate stability; conducting and transmitting RMB monetary policy; forming benchmark exchange rates, interest rates, and yield curves; and offering online surveillance to supervisory institutions.

The history of the past decade has recorded the trails of interbank market development. On April 4, 1994, the launch of the FX trading and clearing system marked the birth of the national unified interbank FX market. On January 3, 1996 the national unified funding market was officially set up with the start of the interbank funding system. On June 6, 1997, the launch of the interbank bond trading system indicated the startup of the national unified interbank bond market. In 1999, the CFETS began to construct the information platform, introducing the trade information system. On May 8, 2000, the CFETS launched a filing and quoting system first within the PBC's Jinan Branch, via which members of the interbank funding market system obtained contact with other institutions. On July 1, 2001, voice broking service was launched in the market, filling the gap in OTC trade service patterns. On June 30, 2003, the launch of www.chinacp.com.cn and the CP quotation system marked the beginning of the construction of a national unified CP market.

After ten years of development, China's interbank market has expanded to a considerable scale. At present, the FX market has 347 members and a record turnover of US $151.1 billion in 2003, with EUR added to its trading currencies of USD, JPY, and HKD against RMB, while FX lending was added to the market system of FX sales and purchases. Over the past decade, the FX market concluded trading worth US$730.85 billion, the corresponding clearing RMB and FX volume hitting 16,260.7 billion yuan and US$1,764.2 billion respectively. 120 institutions signed agreement with the CFETS for FX lending, with a total turnover valued at US$2.89 billion. The interbank funding and bond market has 948 members with three spot instruments of credit lending, bond repo and spot bond. This funding and bond market recorded a trading volume of 40.3 trillion yuan over the past eight years, the figure for 2003 exceeding 17.2 trillion yuan. The voice broking service for RMB has 224 signed institutions with a turnover of 166.7 billion yuan. The electronic filing and quoting system covers the areas under the PBC's branches of Jinan, Chengdu, Chongqing, Guangzhou, Wuhan, Xi'an, Shanghai and Tianjin. 8,034 financial institutions and supervisory departments have used this system via www.chinamoney.com.cn. The CP quotation system now has 944 members, with 1.679 trillion yuan worth of rediscount among financial institutions and repo quoting since the launch of www.chinacp.com.cn.

The money market is a major platform for the central bank's financial adjustment and a major channel for financial institutions to manage their liquidity. At present, the interbank market, with its limited trading varieties and participants, needs to increase its cross rate FX trading varieties, increase derivative and futures trading of RMB and FX, and also further improve the system and operational mechanisms. The 3rd Plenary Session of the 16th CPC Central Committee passed the Decision on Several Issues for Improving the Socialist Market Economy System by the Central Committee of the CPC, which stated clearly that China would perfect the financial adjusting mechanism, improve the central bank's financial adjustment, and set up and improve a mechanism for safeguarding the coordinated development of the money, capital and insurance markets. "Seize the opportunity; make innovation in a pioneering spirit; redouble efforts to make the CFETS the major trading platform and pricing center for RMB-related products " - encouragement from Zhou Xiaochuan, Governor of the PBC, sets a new objective for the CFETS to develop and improve the interbank market at this new historical stage.