China sets limits on buying of US dollars

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SHANGHAI/HONGKONG • China’s foreign exchange regulator has ordered banks in some of the country’s major import and export centres to limit purchases of US dollars this month in the latest attempt to stem capital outflows.

This information came yesterday from three people with direct knowledge of the order.

The move comes as China reported its biggest annual drop in foreign exchange reserves on record last year, while the central bank has allowed a sharp slide in the yuan currency to multi-year lows, raising fears of more capital flight and panicking global markets.

The price spread between the onshore and offshore markets for the yuan has been growing since China’s surprise devaluation last August, spurring Beijing to adopt a range of measures to curb outflows of capital.

All banks in certain trading hubs, including Shenzhen, received the regulator’s order recently, the sources added. They declined to be identified because they are not allowed to speak to the media.

“It will have some impact, because it is a form of control, but at the moment the limit doesn’t seem very restrictive so unless they extend the period of the limit, it’s unlikely to change volumes over the whole year,” said a senior banker in the foreign exchange department of a foreign bank. “It’s just to stop panic buying this month,” the banker added.

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