Over the past four decades since the reform and opening up policy was implemented, China's foreign exchange market has grown from nothing to the large scale it is at today, with a preliminary market system that adapts to the socialist market economy established, thus playing significant roles in macro control, resource allocation, exchange rate formation and risk management. In 2017, China posted USD 24 trillion in the trading of RMB against foreign currencies in the domestic foreign exchange market.

To further support financial institutions in serving the real economy and preventing risks arising from foreign exchange, the State Administration of Foreign Exchange (SAFE) has recently released the Circular on Foreign Exchange Administration for Improving Forward Foreign Exchange Sales and Settlement (Hui Fa No. 3 [2018]) (Circular). Forward foreign exchange sales and settlement are the most basic and one of the major derivatives in the domestic foreign exchange market. Starting from the key links to diversify the trading mechanism, the Circular allows gross or netting settlement as the way of delivery when the forward contract for foreign exchange sales expires, while adopting netting delivery for forward foreign exchange settlement in 2016. This marks forward foreign exchange sales and settlement has been fully market-based in market-oriented pricing, delivery and settlement, and risk management.

The Circular will become effective the day it is released. Going forward, the SAFE will continue to deepen the development and liberalization of the foreign exchange market to provide support and guarantee for trade and investment facilitation.