HSBC Holdings Plc and Citigroup Inc are reportedly being considered to be among the first foreign banks to act as market makers for Renminbi-US dollar trading.

A market maker is an underwriting firm standing by ready to buy and sell a firm's stock, in so doing making a market where shareholders or potential shareholders can sell or buy shares.

Having foreign banks as market makers will help give China the expertise and liquidity it needs to build a mature foreign exchange market that determines the exchange rate of the renminbi, analysts say.

A spokesman for the People's Bank of China (PBC), the central bank, declined to comment.

The authorities said earlier this year that a market maker system for transactions between the Renminbi and the US dollar might be launched by the end of this year.

Such a system is expected to help create a market-oriented exchange rate forming mechanism by enhancing the pricing functions of China's Forex market.

Around 80 percent of China's foreign trade is settled in US dollars.

The trading of foreign currency pairs started in May when China's monetary authorities experimented with the market maker system for much-needed experience in readiness for Renminbi-dollar transactions.

The 10 existing market makers for foreign currency transactions (excluding Renminbi-US dollar) include both Chinese and foreign banks.

On July 21, China appreciated its currency against the US dollar by 2 percent and linked it to a basket of currencies, ending a decade-old system of pegging the Renminbi, or yuan, to the US dollar.

More effort is needed to create a mature market-oriented system, which includes a developed Forex market, to decide the exchange rate of the Fenminbi, the authorities say.

China is still under international pressure to let the yuan which some trading partners complain is undervalued to appreciate further, although senior officials have said many times that reform will be carried out according to its own schedule.

(China Daily September 27, 2005)