China to expand yuan conversion program

June 16, 2016 1:15 PM (UTC+8)

 

Beijing took one more step toward making the yuan an international currency and integrating it into the global financial system by relaxing some of its restrictions on foreign exchange conversions.

The State Administration of Foreign Exchange (SAFE) on Wednesday announced plans to expand a pilot program involving incidental expenses for all mainland-based non-financial companies, reported Chinese news agency Caixin.

The plan has previously been limited to foreign-invested enterprises and firms inside China’s four free trade zones in Shanghai, Tianjin and the southern provinces of Guangdong and Fujian.

The regulator said all mainland non-financial enterprises can now choose to follow a new policy that allows them to convert up to 100 percent of the foreign exchange in their capital account into China’s currency, the yuan, at their own discretion, according to a document dated June 9, reported Caixin.

Under the previous system companies had to report to SAFE every time they needed to make a conversion, and provide lengthy paperwork to prove how they would use the money. The change is effective immediately.

However, the converted yuan in a firm’s capital account cannot be used for a number of specific purposes. Those include paying for expenditures beyond the firm’s business scope; investing in securities and wealth management products other than those issued by a bank and in which the principal of the investment is guaranteed; making entrusted loans to non-related enterprises; and purchasing real estate that is not for the firm’s own use.

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