CHINA’S foreign exchange regulator said Friday it would expand the scope of banks’ foreign exchange derivatives business.

Qualified banks could provide derivatives services between yuan and foreign currencies to cooperative banks, including forward settlements and currency swaps, the State Administration for Foreign Exchange (SAFE) said in a notice on its website.

The regulator added that banks should guide their customers to establish a risk-neutral mentality by focusing more on the core business and hedging foreign exchange risks instead of betting on currency for more profit, according to the notice.

It added that banks should provide customers with exchange rate and risk management services based on the principles of real demand and the principle of risk neutrality, according to the notice.

Currency traders said the latest move was unlikely to bring volatility to the yuan in the short term.

China’s financial regulators have urged companies to protect themselves against currency risks this year as the central bank gradually loosens its control of the yuan, but are struggling to convince local businesses to hedge.

Sources said last week that a central bank-led self-regulatory group that helps oversee China’s foreign exchange industry had asked commercial banks to cap the size of their proprietary trading accounts, which many market participants interpreted as a move to limit financial institutions’ speculation on the yuan. (SD-Agencies)