Regulator may allow trading in yuan options

China may allow yuan options trading to help banks and companies protect their earnings from swings in foreign-exchange rates, according to four people with knowledge of the plan.

The State Administration of Foreign Exchange, the nation’s currency regulator, has asked for some banks’ opinions on the issue, according to the people, who asked not to be identified because the plan hasn’t been announced. Trading may start in two months, two of the people said. Options give the buyer the right, not the obligation, to buy or sell the currency at a specific price on a specific date.

Policy makers, seeking to curb the fastest inflation in two years, may allow the yuan to rise 6.2 per cent by the end of 2011, according to a Bloomberg survey of economists. Senate Foreign Relations Committee Chairman John Kerry said last week that Congress is “impatient” with the artificially low value of China’s yuan and may impose legislation “with teeth” next year.

“We expect increased volatility in the yuan’s exchange rate as the foreign-exchange system is being continuously reformed and as yuan appreciation is likely to accelerate,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong.

The foreign-exchange regulator didn’t reply to three telephone calls and a fax seeking comment. An official at the China Foreign Exchange Trade System, which provides a platform for yuan trading, declined to comment.

Chinese authorities last allowed a new derivative to trade in the nation’s interbank market when approving currency swaps in 2007.