Stabilizing exchange rate

The move by the State Administration of Foreign Exchange to strictly observe the law on foreign exchange purchases by individuals has drawn widespread attention, and it has been interpreted as a signal of China's tightened intervention in the yuan's exchange rate.

In fact, the regulation, which prohibits individuals from using purchased foreign exchanges for overseas profiteering and purchasing of houses and insurances, is not new; it has always existed. The purchase ceiling remains the same. The only difference is the authorities are now pushing for stricter implementation of the regulation.

Since it launched the reform of its foreign exchange regime in 2015, China has always refrained from directly intervening in the yuan's exchange value. However, we should also acknowledge that the internationalization of the yuan is a gradual process and limited interventions are still needed at a time when China's capital market is still in its nascent stage.