BEIJING — China will soon conduct the first central bank bills swap (CBS) operation to support the issuance of perpetual bonds by commercial banks, a central bank official said on Feb 19.
Sun Guofeng, head of the monetary policy department of the People’s Bank of China (PBOC), told a news conference that the central bank will charge fees on the CBS based on market rates.
The CBS scheme allows primary dealers to swap the perpetual bonds they hold for the central bank bills, effectively boosting market liquidity of perpetual bonds, according to Pan Gongsheng, deputy governor of the PBOC.
Pan clarified that the CBS scheme is not the Chinese version of quantitative easing, and has a neutral impact on the liquidity in the banking system.
Perpetual bonds are fixed-income securities with no maturity date and are not redeemable but pay a steady stream of interests forever.
The tool is often used to replenish capital for commercial banks, so they have better financing capability to support the real economy, according to Pan.
In January, the Bank of China issued the first-ever perpetual bonds by a Chinese bank, which were oversubscribed by investors including domestic insurance companies, securities firms, and some foreign institutions.
Some other banks are actively preparing for the issuance of perpetual bonds to replenish capital, according to Pan.