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Chinese currency outflow limited

December 1, 2016

chinaThe country’s central bank has capped the outflow to “stem” the currency’s recent “slump”.

South China Morning Post  reported on the development instigated by the People’s Bank of China, with both “citizens and China-domiciled companies […] limited in how much renminbi they can remit outside the country”. The reasoning was that capping the yuan’s outflow “to stem [the] currency’s slump”, with Hong Hao, Managing Director and Chief Strategist at Bocom International, stating that the yuan “could face heavy pressure next year, probably weakening by another 10 percent”.

The central bank will “limit the amount of renminbi that Chinese companies and individuals can remit outside the country” by “imposing a cap for the first time in more than two decades”, with the express aim of stopping the “outflow” as the currency “plumbs daily lows”. China-based companies “will be limited to net currency outflows equivalent to 30 percent of the owners’ equity”, marking a “reversal in government policy”.

Previously, the Chinese government had “encouraged the renminbi’s worldwide usage” as “part of a long-term strategy to internationalise the currency”, with the bank supporting this new initiative through a “range of measures to plug gaps where the currency could be remitted” during its seven percent “slump” against the dollar in 2016. These included “banning Chinese citizens from buying insurance policies offshore” and “requiring credit card companies to seek currency licenses”.

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