The People’s Bank of China ordering commercial bank to halt cash transfers, as reported by Forbes, is a routine system maintenance exercise, according to Citibank China Customer Service.
According to Tyler Durden of ‘Zerohedge’, the Forbes report is entirely misleading.
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Suspension spans three to nine days
According to Gordon G. Chang of Forbes, the People’s Bank of China has ordered commercial banks to halt cash transfer and this notice has been put up on the online portal for Citigroup’s Citibank unit for its China customers.
Gordon G. Chang notes due to the central bank’s order, there will be a three-day suspension of domestic renminbi transfers and there will be a suspension, spanning nine calendar days, of conversion of renminbi to foreign currency.
Though system maintenance has been cited as the reason, Gordon G. Chang wonders why the central bank would schedule an upgrade and shut down cash transfers ahead of the week-long Lunar New Year holiday starting January 31. He points out that a core function of central banks is to manage seasonable liquidity fluctuations. He also recalls similar incidents in June and December of last year, wherein the ATMs and online banking platforms were shutdown in June citing system upgrade as the reason.
Banks are scrambling for cash?
Gordon G. Chang points out banks are in need of cash to rollover ever-increasing amounts of non-performing loans and wealth management products. He believes banks need more cash due to the impending default of the Credit Equals Gold wealth product scheduled for January 31. He points out analysts are worried that the failure, if it occurs, will cause a China-wide panic.
He notes if the Federal Open Market Committee announces trimming of bond purchases at its meeting on January 29th, it could undermine China due to the darkening perceptions of that country.
Moreover, he notes banks are evidently scrambling for cash as the current cash crunch is not occurring for quarter-end reasons.
Forbes report misleading
Citing China Compass report, Tyler Durden of ‘Zerohedge’ points out the Forbes report is misleading. According to Citibank China Customer Service, the People’s Bank of China has not asked Citibank to stop customers from wiring funds. Citibank customers can still initiate fund transfer requests at any time; though the receiving bank (non-Citibank) will process the funds to be transferred on the next business day, as it always does. Incidentally due to the Lunar New Year break, the next business day is Friday February 7.
The report highlights that such a practice is no different from the practice of banks throughout the world.
Last week, the People’s Bank of China moved to fix a severe liquidity crunch that threatened to cause widespread cash difficulties during the ensuing Chinese New Year by pumping nearly 255bn yuan into its interbank market using reverse repo mechanisms.
UPDATE: 1/27/14 8:50 AM EST – Forbes appears to have pulled the story, as the now dead link would seem to indicate.