China has taken another step by relaxing its grip on interest rates with the launch of a financial product. This allows banks to trade deposits with each other at market determined rates.
The move is considered a way to liberalize its financial industry.
New financial instrument
Known as certificates of deposit, these will push banks closer to an operating environment in which rates are deregulated.
The financial product is also aimed at improving the circulation of cash in the country’s interbank market.
The minimum amount for an individual certificate of deposit will be 50 million yuan ($8.2 million), and banks will have to notify the central bank in advance about how much they plan to issue in a year.
China used to fix deposit and interest rates, which resulted to limited competition between banks. As a result, it affects transferring cash from savers to borrowers because of the artificially low rates.
Over the year, however, the government has rolled back its measures, lifting all restrictions and giving banks more freedom to identify deposit rates.