Forex regulator vows crackdown on 'hot money' inflows

Updated: 2010-10-12 16:29
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BEIJING - China's foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), said on Oct 12 it will continue to stop inflows of speculative money, or "hot money," into China and crackdown on illegal foreign exchange activities.

The stance was stressed again in a report released on Oct 12 by the regulator, who said "hot money" inflows into China are a "long-term and complicated" issue.

The repeated crackdown calling comes after the regulator said in July it had investigated 190 cases of hot money inflows worth $7.35 billion, as part of the campaign launched in February in 13 provinces and municipalities with foreign exchange businesses.

The report said "hot money" enters China because speculators are betting the Chinese currency, the renminbi or yuan, will appreciate.

The regulator also said some local governments, unidentified in the report, may have loosened controls to attract foreign investment.

The central parity rate of the yuan on Oct 12 dropped 43 basis points to 6.6775 per US dollar, after hitting a new high on Oct 11 of 6.6732 per US dollar.

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The central parity rate of renminbi against the US dollar is based on a weighted average of prices from all market makers before the opening of trade each business day.

The yuan has increased in value against the US dollars and has increased in volatility since the People's Bank of China (PBOC), the central bank, announced on June 19 it would reform the renminbi exchange rate regime and increase exchange rate flexibility.

Based on the central parity on Oct 11, the Chinese currency has strengthened against the US dollar by about 2.26 percent since it was set at 6.8275 per US dollar on June 18, the day before the PBOC announcement.

But the SAFE report noted that the reform of the exchange rate regime is not equivalent to an appreciation of the yuan. It also advised market players to be aware of foreign exchange risk.