Few people seen selling yuan for dollars on first day of China’s forex quota re-set

BEIJING/SHANGHAI: China’s authorities have sounded the alarm in recent weeks over the risk of capital outflows from the economy, but there was little evidence at Beijing and Shanghai banks that Chinese individuals were rushing to lock in 2017 quotas to buy foreign exchange.

Only a trickle of people at banks were seen selling yuan for dollars on the first business day of the new year, when buyers in theory could have made use of their quotas.

Under China’s capital controls, individuals are permitted to buy up to US$ 50,000 in foreign exchange a year, and data shows January is typically a standout month for onshore foreign currency deposits.

The yuan shed nearly 7 per cent against the dollar last year, its poorest showing since 1994, as policymakers struggled to contain capital outflows and preserve foreign exchange reserves in the face of a slowing economy and resurgent dollar.

Authorities have tightened monitoring of foreign exchange transactions out of concern over capital outflows.

China’s currency regulator this week began requiring Chinese individuals who want to buy foreign currencies to specify the purpose of the purchase and provide additional information, and said it would monitor transactions more closely and frequently as well as punish rule-breakers.

At major bank branches in two of China’s biggest cities, there were no queues on Tuesday, and the few individuals who changed money reported doing so with relative ease.

“The whole process of changing money was pretty smooth and quick,” said an office worker surnamed Xu, who withdrew US$ 500 from an ICBC branch in Beijing on Tuesday for a coming vacation in the United States.

Several other customers at banks in the two cities reported similar ease when changing amounts of money well below the quota.

However, it is unclear how much foreign currency exchange was being conducted online on Tuesday.

Central bank data shows onshore foreign exchange deposits rose by almost 32 per cent in the first 11 months of 2016, propelled in part by the yuan’s fall to eightyear lows.

Aside from the rising forex deposits, there has been little indication of growing unease among ordinary Chinese – although the authorities were taking no chances, repeating a mantra that the economy is improving and there is no basis for depreciation of the yuan in the long term. — Reuters