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A FIRMER yuan and higher interest rates could attract more money inflows this year, despite the possible impact of the U.S. Federal Reserve’s stimulus tapering, China’s foreign exchange regulator has said.
The Chinese authorities are considering a “Tobin tax” on financial transactions to deter speculative capital flows, Guan Tao, head of the department of international payments at the State Administration of Foreign Exchange (SAFE), said over the weekend.
A Tobin tax imposes a small charge on individual currency transactions to discourage excessive speculation.
“If the renminbi (yuan) continues to be stable or rise sightly while yuan interest rates are higher than those of major currencies, financial operations of many companies could lead to more money inflows,” Guan told a news conference.
Chinese banks posted a surplus of 1.68 trillion yuan (US$277.61 billion) in their foreign exchange settlements in 2013, up 210 percent from the previous year, Guan said.
The central bank has said China’s foreign exchange reserves, the world’s largest, rose US$157 billion in the fourth quarter to US$3.82 trillion at end-2013.
A Reuters poll showed that the yuan is likely to gain 1.7 percent versus the U.S. dollar in 2014 due to capital inflows, even as the U.S. currency draws some support from the Fed’s move to unwind its economic stimulus.
Guan said the Fed’s tapering on China’s capital flows has so far been limited, but he cautioned that some money could leave emerging markets as the U.S. central bank pares its stimulus.
Meanwhile, the foreign exchange regulator said in a statement on its website that it will simplify rules on some currency transactions, including making it easier for foreign investors to deal with nonperforming loans.
From Feb. 10, foreign investors will no longer need approvals when they exchange profits from disposals of bad loans in China, while approvals on currency dealings by Chinese debt-clearing companies will also be abolished, according to the SAFE.(SD-Agencies)
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