China drafting rules for new tax on forex deals

BEIJING: China’s central bank has drafted rules for a tax on foreign-exchange transactions that would help curb currency speculation, according to people with knowledge of the matter.

The initial rate of the socalled Tobin tax may be kept at zero to allow authorities time to refine the rules, said the people, who asked not to be identified. The tax is not designed to disrupt hedging and other foreign-exchange transactions undertaken by companies, they said.

Imposing a levy on foreignexchange trading would be the most extreme step yet by policy makers to prevent speculative bets against the Chinese currency, after state-run banks repeatedly intervened to support the yuan and the government intensified a crackdown on capital outflows.

A Tobin tax would complicate plans by China to create an international reserve currency and could undermine the leadership’s pledge to increase role of market forces in world’s second-largest economy.

The rules still need central government approval and it’s not clear how quickly they can be implemented, the people said.