China’s central bank to scrutinise bulk dollar purchases

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China’s central bank has announced its intention to closely scrutinize bulk dollar purchases. This move suggests that the People’s Bank of China (PBOC) is increasing its efforts to monitor and regulate foreign exchange transactions, particularly those involving the U.S. dollar.

Scrutinizing bulk dollar purchases can serve multiple purposes, including:

  1. Control Capital Outflows: China has been concerned about capital outflows in the past, and monitoring bulk dollar purchases can help the government ensure that significant amounts of currency are not leaving the country in an unregulated manner.
  2. Exchange Rate Stability: The PBOC may aim to maintain stability in its currency exchange rate, and monitoring large dollar transactions can help prevent sudden and significant fluctuations in the value of the Chinese yuan.
  3. Regulation and Compliance: The central bank may also be looking to enhance oversight and compliance within the financial system, particularly in relation to foreign currency transactions. This could help prevent money laundering and illicit financial activities.
  4. Reserve Management: China holds significant foreign exchange reserves, including U.S. dollars. Careful scrutiny of bulk purchases can assist in managing and optimizing these reserves effectively.

Overall, this move by China’s central bank reflects its commitment to maintaining control over its currency and its desire to ensure the stability of its financial system. It also aligns with broader efforts by the Chinese government to enhance regulatory oversight in various sectors of its economy.

China’s central bank is tightening its scrutiny of bulk dollar purchases by domestic firms, three sources with direct knowledge of the matter said on Monday, at a time when the Chinese currency faces mounting depreciation pressure.

Companies that need to purchase $50 million or more will now need approval from the People’s Bank of China (PBOC), which convened a meeting with some commercial banks over the weekend on the matter, the sources said.

“The approval process will be extended,” said one of the sources.

“The recent yuan depreciation has indeed been too severe, and many now expect the yuan to weaken beyond 7.5 per dollar.”

The central bank has warned some lenders of their huge dollar purchases on behalf of their corporate clients, according one of the other sources.

The directive is being issued as the Chinese yuan has declined by about 6% against the U.S. dollar so far this year, falling to levels that were last seen during the 2008 global financial crisis.

News is taken from reference of Reuters and re-written by admin of Nepali Sanchar.
Source Reuters
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