Taking the risk of capital outflow, China has introduced additional restrictions on pulling yuan out of the country to prevent destabilizing the financial system. According to BloombergHT, the State Foreign Currency Administration of China in a statement on Dec. 31 demanded legal loopholes abused for the purposes of money laundering and illegal outflow of yuan be closed.
Officials would not approve requests to bring the yuan overseas for the purpose of converting into foreign currencies unless applicants provide a valid business reason as the monetary authority has noticed funds were increasingly leaving the country as yuan payments.
Chinese citizens have to present a detailed plan regarding the use of the fund. They would also have to provide detailed information as to the cause of the overseas trip, and provide details for a valid business trip, family visit or medical reasons. While the previously determined annual foreign exchange quota of $50,000 per capita remains unchanged, citizens have to provide additional information requested through bank forms as of Jan. 1.
For instance, citizens who want to buy foreign currency abroad have to make commitments pledging that they will not use the yuan that exit the country to buy real estate, securities, life insurance or insurance-type investment. Although the rules were the same before, citizens were not required to make commitments.
Citizens who violate the quota would be added to a monitoring list of State Foreign Currency Administration and will be excluded from the list monitoring foreign currency quotas for three years and subjected to money laundering investigations. The new restrictions, which allow other steps to restrain yuan outflows, imply that China is placing more emphasis on preserving foreign exchange reserves than targeting a particular level for the yuan against foreign currencies, particularly the U.S. dollar. After keeping the yuan steady at around 6.7 per dollar from July through September, the People's Bank of China allowed the currency to weaken beyond 6.9. Meanwhile, foreign-exchange reserves declined towards the end of 2016.