An official from the People's Bank of China said on December 2 that it was necessary to adjust the limit of the cross-border flow of the Chinese currency. He revealed that the central banks was seeking the right time to palce and improve the channels for RMB cash return and clearance.

An effective and reliable mechanism for the influx and outflux of yuan will be in place when the progress of regionalization of RMB lays a good foundation for that and the experience of RMB clearance in Hong Kong and Macao is drawn on. However, the systems will vary among countries and regions.

The purpose is to expand bilateral or multilateral channels of bank payment settlement or transfer between China and its trade partners. It will also monitor the RMB cross-border circulation and clearance to prevent any disorder and problems in the process.

He also reiterated the central bank's determination on fight against money laundering. A sharp eye will be cast on payment involving big amount and arousing suspicion. The central bank vows to work closely with other relevant government departments to crack down illegal banking houses and illegal forex behaviors to control any illegal cross-border flow of capital.

Domestic commercial banks will be questioned for their remittance, reception and transfer of massive capital with unidentified purpose and sources and will face severe penalties if any illegal operations are found. This will serve to guard against attempts of overseas cash forex speculators on laundering their money through domestic commercial banks.

In this way, illegal capital will find no channel of circulation. And transfer of unlawful money gained through breaches of the law, such as money laundering, bribery, corruption, etc., will be impossible.

The official mentioned the RMB clearance arrangements which are available by China's central bank to Hong Kong and Macao, as well as the country's settlement agreements for border trade with Viet Nam, Mongolia and Russia. These measures guarantee the back flow of RMB.

In addition, he cited that cash accounted for merely 8 percent in the total money supply and even this proportion continued to go down. The figure is even smaller for RMB in circulation overseas.

Given all of this, he saw hardly any possibility of harm by raised RMB cross-border flow to the national economy.

He also explained the incentives behind the rise of RMB outflow.

China's economy experienced fast and healthy growth during the 10 years between 1993 to 2004. Chinese consumers are enjoying higher�Cend market. There is more interaction between China and the rest of the world. In addition to all of this, Chinese yuan keeps stable and strong. Demand from neighboring countries and regions is rising. And the circulation of the Chinese currency is extending.

All of this has give reasons to raise the ceiling of the cross-border flow of RMB.

The official highlighted the fact that the economic exchanges and cooperation between the Chinese mainland and Hong and Macao had been keeping closer since the two regions returned to China, which resulted to increasing demand for RMB day by day.

The development of the border trade with Russia, Mongolia, Vietnam, Burma, and Nepal has made yuan the major currency for payment settlement. Therefore, these neighbors need more RMB.

He recalled the agreements for swap of currencies between China and other Asian nations. In May, 2005, the ASEAN + 3 Finance Ministers Meeting launched Chiang-Mai Initiative in Tailand. That was followed by signing of agreements of currencies swap between RMB and currencies of three of its neighboring countries, Japan, South Korea and Philippines. This proved that Asian Nations had built up their confidence on RMB and developed more potential demand for RMB.

The official noted that Hong Kong, Macao and neighboring Asian countries have become destinations of more and more travelers from the Chinese mainland on one hand. On the other hand, foreign tourists have shown increasing willingness to spend more in China. They need more yuan to satisfy their appetite for consumption in China.

China's central bank announced on December 2 that 20,000 yuan would be the most a traveler can take in and out of the country. The central bank believes the limit is reasonably set.

By People's Daily Online