CHINA will allow limited convertibility of the yuan in three free trade zones (FTZs) in Guangdong, Fujian and Tianjin, in a move to further liberalize its capital account after its currency was admitted into the International Monetary Fund’s reserve basket.

    In new documents outlining plans to support FTZs, the People’s Bank of China said it was seeking to deepen reforms of foreign exchange management and assist firms looking to borrow yuan overseas.

    Onshore institutions that are registered in the FTZs and do not fall into negative lists each will be able to freely convert up to US$10 million worth of yuan annually, as part of its reforms of cross-border currency trade.

    Multinational companies based in these FTZs also will be allowed to do cross-border two-way cash pooling within a corporate group, the central bank said.

    Cash pooling helps enhance multinational companies’ capital efficiency and enables greater visibility, control and flexibility in managing their onshore and offshore yuan-denominated fund flows.

    China has stepped up its efforts to open domestic markets to foreign players in the past few months and its work was recognized by the International Monetary Fund, which admitted its yuan currency into the benchmark currency basket Nov. 30.

    The yuan ranked the fifth-most active currency for global payments by value in October, according to the global transaction services organization SWIFT. The FTZs are expected to foster the greater use of the yuan in trade and finance.

    (SD-Agencies)