China to Orderly Advance Yuan Convertibility On Capital Account

China’s foreign exchange regulator said Tuesday it will advance the yuan’s convertibility on the capital account in a stable and orderly way, although it is not the fundamental goal of the country’s foreign exchange reform.

It is a gradual process, and also a systematic project that needs the coordination of many departments to offset external impacts, the State Administration of Foreign Exchange (SAFE) said in a statement on its website.

China has only allowed the yuan’s convertibility on the current account. A full convertible yuan is the prerequisite of making it an international reserve currency.

According to the statement, China will expand the use of the yuan in cross-border trade and gradually increase the channel for capital outflows.

The government will encourage eligible institutions to invest in foreign countries. It will also gradually open the domestic financial market and build up a system to ward against the impacts arising from the free capital flows, it said.

SAFE noted it will closely monitor domestic and international economic operations, and keep the convertibility promotion measures in line with the micro-economic environment and financial supervision. While partly loosening the restrictions, it will also improve the oversight to safeguard the country’s financial security.

China has been progressively and cautiously advancing the yuan’s convertibility on the capital account. Since the start of the global financial crisis, China has signed currency swap agreements worth 1.5 trillion yuan with 17 countries and regions to support its trade and investment with these economies.

By the end of September 2011, the assets of foreign direct investment in China has totaled 1.62 trillion U.S. dollars. China’s overseas direct investment has stood at 345.5 billion U.S. dollars.

By March 9, 2012, China had approved 24.55 billion U.S. dollars of investment quotas for the Qualified Foreign Institutional Investors (QFII), and 75.25 billion U.S. dollars for the Qualified Domestic Institutional Investors (QDII).

This news has been reported by Xinhuanet News.

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