THE central bank will allow funds in non-resident accounts (NRA) to be converted into fixed deposits, sources told Reuters, which could encourage foreigners’ to keep trade-related earnings in the country and help authorities temper capital outflows.

    Four people with direct knowledge of the matter told Reuters yesterday that the People’s Bank of China (PBOC) has issued a document to the effect, with commercial banks expected to receive formal notice soon.

    Some regions have already started preparing details to implement the new regulation, they said.

    The people declined to be identified because they are not authorized to speak to the media. The PBOC did not respond to Reuters’ request for comment.

    “Regulators hope to prevent capital outflows,” said a banking source.

    “The latest step shows regulators are trying to attract more funds into the country, so as to offset outflows.”

    The government has been fighting to suppress speculative activity and capital flight resulting from downward pressure on the yuan against the dollar, but it has its work cut out amid confusion over its currency policy and a slowing domestic economy.

    Letting foreign companies reallocate earnings from trade into fixed deposit accounts would theoretically benefit these firms as they can earn higher returns on their cash than they might at home, given negligible interest rates on dollar assets.

    In some ways the latest move smacks of a carrot and stick approach: The central bank has already asked commercial banks to strengthen supervision of NRA purchases of foreign exchange in China, among other measures to make it more difficult to move money quickly out of the country.

    NRA accounts include both yuan and foreign currency deposits, but exactly how much money is saved in such accounts is difficult to estimate, bankers said.(SD-Agencies)