The State Administration of Foreign Exchange issued a circular Monday regularizing the conversion of foreign currency to yuan by individual residents. While the Chinese government has repeatedly refuted allegations that the yuan is undervalued, it has vowed to ameliorate the currency's value-determining mechanisms.

China's foreign exchange administrator on Monday issued a circular, to take effect on April 1, on regularizing banks' settlement of massive forex holdings of individual residents.

While carrying forward policies of rigid forex controls, China allows its residents to convert their foreign exchange holdings into the yuan, or Renminbi, at designated banks. Such holdings are increasing rapidly on the back of the country's economic boom and domestic residents' more frequent overseas exchanges.

The new regulation from the State Administration of Foreign Exchange (SAFE) says residents of the mainland may convert their foreign currency into yuan if the amount is at or below an equivalent of US$10,000. They need only show their proof of identity at the bank.

When converting currency worth US$10,000 to 50,000, individuals should produce certificates proving legitimate sources of income.

Amounts of more than US$50,000 will require the advance submission of an application to one of the forex administration bureaus scattered all over the country. These will be examined and the sources of the money verified before approval is given.

A SAFE spokesman said the move would "further upgrade administration of forex holdings of individual residents, standardize the banks' operations and tighten supervision over the flow of forex funds owned by individual residents."

The SAFE requires bank branches to report large and suspicious forex transactions to their supervisory offices and SAFE bureaus.

During the past months, the SAFE has tightened supervision on foreign exchange settlement at banks and the flow of "hot money"-speculation on the yuan's revaluation.

The circular comes at a time when the yuan is facing mounting pressure for an upward revaluation, since some developed countries argue that the low yuan has been giving China an advantage in exports and bringing about job losses in other counties.

The Chinese government has repeatedly refuted the criticism, claiming that a stable currency is beneficial to both the Chinese and world economies, but it vowed to ameliorate the yuan-determining mechanisms.

China has now implemented a regulated, floating exchange rate system based on market supply and demand.

The country's official forex reserve stood at more than US$400 billion at the end of 2003, second only to Japan's.
 
(Xinhua News Agency March 23, 2004)