News Archive

China to loosen control on Forex
2002/05/24

Beijing - China will gradually loosen its control on foreign exchange, People's Bank of China governor Dai Xianglong said on Thursday, without giving a detailed timetable. Institutions under the PBOC are vigorously preparing for a future with a convertible Chinese currency.

According to Dai the country will promote full convertibility of the Renminbi as its foreign exchanges reserves grow, Xinhua reports.

Forex reserves rose to US$233.8 billion at the end of April, up US$21.6 billion from the start of this year, Dai said at the 9th General Assembly of the World Savings Banks Institute (WSBI).

He said China will loosen guidelines regarding the floating interest rates and keep the Renminbi stable against other currencies.

Measures to tighten or loosen the foreign exchange control have fluctuated depending on the size of the capital flight from China.

At the end of the 1990s US$ 50 to 100 billion has left China illegally, depending on the source of information. Tough measures by the State Administration of Foreign Exchange (SAFE) brought back the outflow to around US$ 10 billion annually.

In the long run forex controls are expected to disappear as governor Dai indicated yet again. The China Foreign Exchange Trade System (CFETS) in Shanghai, a department of the PBOC responsible for the exchange of the Renminbi into foreign currencies, is expected to hold a press conference on June 3.

Currently, the CFETS is the only location where banks can trade in Renminbi and change it into US dollars, HK dollars, Yen or Euros. Under a convertible Renminbi the center would lose its function. However, in June it will announce new services in exchanging foreign currencies.

"They are hedging their own future," says a foreign banker in Shanghai. Now banks can trade in foreign currencies without any interference from the financial authorities. The new service is expected to remain a voluntarily one.

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