Breaking Barriers in Offshore Fund Pools: Six Major Banks Directly Connect to Offshore Trading, Central Bank Reshapes RMB Pricing Power

The People's Bank of China is reshaping the pricing power of the RMB exchange rate and its liquidity management mechanism with unprecedented intensity, by breaking down the physical and account barriers between the onshore and offshore RMB markets.

Data on June 22 shows that under the new regulations, the China Foreign Exchange Trade System (CFETS) has completed clearing for the first batch of 43 billion RMB in offshore RMB spot trades.This marks an official breakthrough where the six major state-owned banks can directly conduct offshore RMB trading from their mainland headquarters.

This change completely ends the old cumbersome process that required reliance on free-trade zone branches and segregated accounts.The seamless connection of onshore and offshore liquidity pools now enables banks to manage bilateral positions more efficiently, directly enhancing the convenience of RMB cross-border movement.

For the market, this is not only a critical step in the internationalization of the RMB, but also a strategic lever for the central bank to narrow the onshore-offshore price gap and raise the cost of short-selling, with the aim of further guarding against exchange rate overshooting risk and maintaining tight control over exchange rate pricing power.

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

On June 17, Pan Gongsheng, governor of the People’s Bank of China, announced at the 2026 Lujiazui Forum that six banks — Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and China CITIC Bank — would be authorized to conduct offshore RMB forex trading on the CFETS platform in the Shanghai Free Trade Zone.

Previously, Chinese banks participating in the offshore RMB market typically needed to operate through branches in free-trade zones such as Shanghai and use offshore accounts that were strictly segregated from onshore balance sheets.

Now, participating banks can directly engage in offshore RMB trading from their mainland headquarters, thus realizing seamless management of onshore and offshore RMB positions.Although the specific quota allocated to each bank has not been disclosed and quota restrictions still exist, the boundaries between the two liquidity pools have become significantly blurred.

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

This effectively establishes a bridge connecting the two segregated liquidity pools.

She noted that this reform is a key step toward enhancing the RMB’s convertibility, enabling banks to transfer liquidity more smoothly between the two markets and thus supporting wider international use of the RMB.

Strategic Intentions: Compressing Deviation Space and Raising Short-Selling Costs

The execution of the first batch of 43 billion RMB in clearing operations not only simplifies trading processes, but also sends a clear signal of the central bank's intent to strengthen exchange rate management. By connecting the onshore and offshore markets, the central bank can more directly influence the liquidity supply and pricing of offshore RMB.

With barriers between the onshore and offshore liquidity pools broken, pricing of offshore RMB will be more closely anchored to the onshore market. This mechanism will effectively compress the deviation space for offshore pricing, making it difficult for speculative capital to maliciously widen the onshore-offshore price gap.

More critically, this move will significantly increase the cost of shorting RMB in the offshore market. When short-sellers attempt to build positions offshore, the central bank can intervene directly in offshore liquidity by adjusting onshore liquidity, thus preventing exchange rate overshooting risks.

This mechanism works in tandem with other recent central bank policy tools. Previously, the central bank reactivated the counter-cyclical factor and issued new regulations for cross-border interbank RMB financing, using macro-prudential parameters for counter-cyclical adjustments.

The addition of a direct connection to the offshore trading mechanism makes the central bank's exchange rate management matrix more multidimensional and further strengthens its control over RMB exchange rate pricing.

Liquidity Closed Loop: Firmly Grasping the Currency Lifeline Amid Openness

While promoting the internationalization of the RMB and opening the onshore-offshore markets, the central bank has not relaxed its precise management of overall liquidity.

Recently, over the past three months, the central bank has conducted net liquidity withdrawals of more than 1.35 trillion RMB through MLF and outright repo operations, in order to prevent funding costs from declining excessively below the desired range.

In addition, the central bank has flexibly adjusted the foreign exchange risk reserve ratio, lowering the FX risk reserve ratio for forward forex sales from 20% to 0%, to stimulate forward dollar demand and ease the one-sided appreciation expectations of the RMB.

These operations indicate that the central bank, while enriching its toolkit for both offshore RMB and macro-prudential liquidity management, has consistently maintained sensitive control over funding costs and cross-border capital flows.