Breaking Down Offshore Fund Pool Barriers: Six Major Banks Directly Connect to Offshore Transactions, Central Bank Reshapes RMB Pricing Power

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China’s central bank is breaking down the physical and account barriers between the onshore and offshore RMB markets, reshaping the RMB exchange rate pricing power and liquidity management mechanism with unprecedented force.

Data from June 22 shows that the China Foreign Exchange Trade System (CFETS) has completed settlement of the first batch of 43 billion yuan of offshore RMB spot transactions under the new regulations.This marks the official realization of a mechanism breakthrough, allowing six major state-owned banks to conduct offshore RMB transactions directly from their mainland headquarters.

This reform has thoroughly ended the cumbersome process of relying on branches and segregated accounts in free-trade zones.The seamless connection of onshore and offshore capital pools allows banks to manage bilateral positions more efficiently and directly improves the convenience of cross-border RMB flows.

For the market, this is not only a key step in RMB internationalization but also a strategic tool for the central bank to narrow the offshore spread and raise the cost of short-selling, aiming to further guard against exchange rate overshooting risks and firmly grasp exchange rate pricing power.

Mechanism Breakthrough: Building a "Bridge" Connecting Segregated Capital Pools

As cited by WallstreetCN, on June 17, Pan Gongsheng, Governor of the People’s Bank of China, announced at the 2026 Lujiazui Forum that Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and China CITIC Bank will be authorized to conduct offshore RMB FX trading using the CFETS platform in Shanghai’s Free Trade Zone.

Previously, Chinese banks participating in the offshore RMB market typically had to go through branches in free trade zones such as Shanghai and use offshore accounts strictly segregated from the mainland balance sheets.

Now, participating banks can conduct offshore RMB trading directly from their mainland headquarters, realizing seamless management of onshore and offshore RMB positions.The specific quotas allocated to each bank have not been disclosed, and quota restrictions still exist, but the boundaries between the two capital pools have been significantly blurred.

Becky Liu, Standard Chartered China Head of Macro Strategy, commented:

This effectively builds a bridge connecting the two segregated capital pools.

She pointed out that this reform is an important step in enhancing RMB convertibility, enabling banks to more smoothly transfer liquidity between the two markets and thereby support broader international usage of RMB.

Strategic Intent: Reducing Deviation Space and Raising Short-Selling Cost

The settlement of the first batch of 43 billion yuan is not only evidence of simplified transaction processes, but also sends a clear signal of the central bank’s intention to strengthen RMB exchange rate control. By connecting onshore and offshore markets, the central bank can directly influence offshore RMB liquidity supply and pricing.

When the barriers between the onshore and offshore capital pools are broken, offshore RMB pricing will be more closely anchored to the onshore market. This mechanism will effectively reduce the deviation in offshore pricing, making it difficult for speculative funds to maliciously widen the offshore spread.

More importantly, this move significantly increases the cost of short-selling RMB in the offshore market. When short-sellers try to establish positions in the offshore market, the central bank can directly intervene in offshore funds by allocating onshore liquidity, thereby preventing exchange rate overshooting risks.

This mechanism is closely coordinated with other recent central bank tools. Previously, the central bank reactivated the counter-cyclical factor and issued new regulations for RMB cross-border interbank financing, using macroprudential parameters for counter-cyclical adjustment.

The addition of the direct offshore trading mechanism makes the central bank’s RMB exchange rate control matrix more three-dimensional, further enhancing its pricing control over the RMB exchange rate.

Liquidity Closed Loop: Firm Grip on Monetary Pulse Amid Openness

While advancing RMB internationalization and connecting the onshore and offshore markets, the central bank has not relaxed precise management of overall liquidity.

Recently, the central bank cumulatively withdrew more than 1.35 trillion yuan of net liquidity over three consecutive months via MLF and outright repos to prevent fund prices from falling excessively outside the desired range.

Additionally, the central bank flexibly adjusted the FX risk reserve ratio, lowering the reserve ratio for forward FX sales business from 20% to 0%, to stimulate forward dollar demand and ease unilateral RMB appreciation expectations.

These actions show that, as the central bank enriches its offshore RMB and macroprudential liquidity management toolbox, it maintains sharp control over fund prices and cross-border capital flows.

Risk Warning and Disclaimer ClauseThe market has risks; invest cautiously. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions herein fit their particular circumstances. Investing based on this is at your own risk. ```