Construction Of Currency Futures Market For The Countries Along The Belt And Road

In 2013, China proposed an initiative to develop the Belt and Road area with the 65 countries in the region together. Along with the implementation of the initiative, there are huge demands for hedging currency settlement risk and exchange rate risk arisen from the fields of economic cooperation and infrastructure construction between China and these countries. The Chicago Mercantile Exchange(CME) from the United States is the world’s largest financial derivatives exchange, and it has listed 10 currency futures products of emerging economies, including 6 currency futures products from the countries along the Belt and Road. And China should be able to take the lead to establish an onshore currency futures market for the region with the opportunity brought by the Belt and Road Initiative, which has a main function for hedging the risk and serving the area. Most of the countries along the Belt and Road are developing countries. There are more than half of the countries adopt an exchange rate regime the same as or more flexible than China. Most of the countries do not have a mature foreign exchange market yet, having cross border capital controls, and the exchange rate fluctuations of their currencies are also very high. So the Establishment of the Currency Futures Market for the Countries along the Belt and Road will need to take into account other countries’ foreign exchange management systems and economic development needs. Only in this way China’s initiative can be accepted by other countries, and the construction of currency futures market can be successful. Otherwise it will be like the United States, for example, CME launched different types of RMB currency futures and futures options in 2006, 2011, and 2013, but so far all the volumes are very little, due to the absence of support and participation of Chinese banks and enterprises. This case has provided a number of lessons learned to our development of a regulated regional currency futures market. In short, at present China needs to introduce cross exchange rate futures first as soon as possible, and then list direct exchange rate futures, in order to reduce the impact on RMB exchange rate, but it is worth noting that we do not want to miss opportunities just for avoiding potential risks.