Q:How has the management policy of cross-border transportation of nationalcurrency evolved over the years?
A: There have been several changes in the rules oncross-border transportation of national currency since 1949 when the People’sRepublic of China was founded. The first clearly definedrule on cross-border transportation of national currency promulgated in 1951prohibited such transportations. However, certain leeway has been allowed inpractice considering the growing external exchange of the country and thedemand for the national currency by the international community for collectionand gift purposes. Since late 1980s and early 1990s, China’s economicdevelopment has resulted in several big changes in the limit set for thecross-border transportation of Renminbi. The limit was raised from 200 Yuan in1987 to 2000 Yuan in 1990 in order to meet the requirements of individualsespecially foreign visitors on the occasion of the Asian Games held in Beijing. Butsuch a temporary arrangement was brought to a halt right after the Game. In1993, the Administrative Rules of the People’s Republic of China onCross-Border Transportation of National Currency (Rule No. 108 of the StateCouncil) was issued, stipulating that the cross-border transportation ofnational currency is managed by a limit set by the People’s Bank of China who,in the same year, lifted the upper limit of cross-border transportation of Renminbito 6000 Yuan per person per time. The limit has been in force up till now.
Q:Would you explain the rationale behind the adjustment this time?
A: The past ten years since 1993 have witnessed a rapid andhealthy development in the economy, a constant improvement in consumption, andan ever enlarging external exchange alongside a stable exchange rate and astrong Renminbi, which has resulted in a growing demand and a expandingcirculation of Renminbi in neighboring countries and regions. It is thus, highlydemanded that the limit for cross-border transportation of Renminbi beadjusted.
1. Over thepast ten years, China has successfully brought inflation undercontrol and weathered deflationary pressure. The national economy has realizeda sustained, rapid and healthy development and the comprehensive nationalstrength has greatly improved. A unified managed floating exchange rate regimebased on market demand and supply was adopted. Despite the outbreak offinancial crisis in Southeast Asia, China hasbeen steadily pursuing the exchange rate policy of “not depreciating Renminbi”,establishing a stable and strong image of the Chinese currency in the world.
After the sovereignty return of Hong Kong and Macao, both regionsforged closer ties with the mainland, requiring more Renminbi.
The demand for Renminbi is also growing withthe development of border trade where the Chinese currency has become the majorinstrument in trade settlement in countries bordering China like Russia, Mongolia, Viet Nam, Myanmar and Nepal.
In May 2000, the Chiang Mai Initiativewas adopted at the Asean +3 (China, Japan andSouth Korean) Finance Ministers Meeting, under which China hassigned Bilateral Swap Agreements (BSAs) with the Philippines, Malaysia, Thailand, Japan and South Korea respectively. The BSAs signed with Japan, South Korea and the Philippines were based onnational currencies, indicating increased confidence of the Asian countries inand potential demand for Renminbi.
2. The circulationof Renminbi outside China demands a higher limit set for theChinese currency permitted to be transported cross border.
The improvement of living standard andmore frequent external exchanges of people prove that the current 6000 Yuanlimit for cross-border transportation of Renminbi is not enough for the Chinesecitizens in covering expenses incurred in outbound travel, business trip andstudies abroad. The current tourism figures have shown that more people from themainland are traveling to Hong Kong, Macao andneighboring Asian countries. As these countries and regions are willing toaccept Renminbi and the travelers from Chinese mainland have a property tospend heavily in the local shops, a high proportion of travelers thus tend tobring with them Renminbi much exceeding the prescribed limit.
On the other hand, foreign travelers arespending more money in China. They tend toincrease their living and travel expenses as China isincreasingly becoming an attraction to foreign tourists. Meanwhile, with theexpanded out flow of Renminbi, foreigners who hold Renminbi wish they couldbring in more Renminbi to cover their spending in China.
3. Due toexisting barriers in international cooperation and technology standards as wellas differences in consumption behaviors and creditworthiness, cash as a paymentmeans is unlikely to be replaced by non-cash instruments.
Currently, cross-border use of bankcardsis still constrained by certain factors. Neither are bank remittance andtravelers’ cheques popular because of the high service charge and scarcity ofservice points. The underdevelopment of bankcard acceptance in China alsomakes it difficult for foreigners to pay their expenses with credit cards inthe small and medium sized cities, not to mention in the tourist attractions. Additionally,foreign travelers usually know little about the service the Chinese banks andthe commercial and tourism departments could provide, therefore, they tend tobring along with them Renminbi exchanged outside China. When the Chinesecitizens travel abroad, however, due to lack of knowledge of the serviceprovided by local financial institutions, and language barriers, they are morelikely to spend Renminbi in local expenses. Differences in means of payment andconsumption behaviors also account for the pressing need to raise the currencylimit.
Q: What are the factors taken into consideration in adjusting the limit set forcross-border transportation of national currency?
A: First, household consumption has increased in China.Statistics from relevant departments showed that in 1993, annual consumptionper capita in China was RMB1331 Yuan while the limit ofRenminbi permitted for cross-border transportation was set at 6000 Yuan, 4.5times of the consumption figure. In 2003, per capita consumption in China roseto 4089 Yuan, more than 3 times that of 1993. Thus, if based on the 1993figure, the limit has a good reason to be reset at 20000 Yuan per person pertime.
Second, the Chinese people tend to spend more whentraveling abroad. As the country gets richer, more people are traveling abroadeach year. According to estimates by tourism authorities, a hike of the limitfor cross-border transportation of Renminbi to 20000 Yuan per person per timecould meet the expenses needs of most of the Chinese travelers.
Third, it keeps in line with the administrative policy onforeign exchange cash carried by cross-border travelers. The State Council hasapproved that since September 1, 2003, resident or non-resident travelerscarrying foreign exchange cash equivalent to US$5000 or below per person pertime need not to declare at the customs office. The figure is 1.5 times higherthan the former limit of US$2000 per person per time. Such a big change in thelimit set on the carriage of foreign exchange cash under new circumstancesrequires corresponding limit adjustment for cross-border Renminbitransportation.
Q:Would there be any negative impact on domestic economy by the increase in thecross-border flow of the Renminbi?
A: The destination and volume of Renminbi outflux offerlittle possibility for such an impact. The three major destinations forRenminbi outflux are: first, to Hong Kong, Macao and Taiwan regions to meet theneeds arising from personnel exchange and travel; Second, to southeast Asia,which are carried by the Chinese businessmen and travelers to meet small amountpayment needs; Third, to bordering countries such as DPRK (North Korea),Mongolia, Nepal, Myanmar, Viet Nam and Russia used for border trade settlement.Currently, the PBC has provided Renminbi settlement arrangements for banks in Hong Kong and Macao and signed bordertrade settlement agreements with Viet Nam, Mongolia, Russia, etc.Such measures can ensure a steady reflow of Renminbi, and protect the domesticeconomy from any major negative impacts. Furthermore, cash in circulationcurrently only accounts for 8 percent of money supply, and is even still on thedecrease. Renminbi circulated outside Chinese mainland takes even a smallershare of money supply, therefore, the impact of Renminbi cross-bordertransportation on domestic economy would be small.
Q:What measures will the PBC take in the future to promote the cross-bordertransportation of Renminbi?
A: First, we will improve cross-border financial serviceand develop a variety of convenient measures and tools for capital remittanceand exchange. More channels will be created to facilitate cross-border capitalflow through the banking system. While taking into account of the cross-bordertravelers’ preference to spend in cash and adjusting the limit on Renminbitransportation, convenient non-cash payment instrument will be introduced andincreased to reduce the carriage and use of cash.
Second, we will establish and improve the channels fororderly reflow and settlement of Renminbi. Based on growing acceptance ofRenminbi in the region and the experiences attained in Renminbi settlement in Hong Kong and Macao, a normalizedtwo-way flow mechanism of Renminbi will be established with different countriesand regions and cross-border Renminbi remittance will be increased betweenbanks on a bilateral or multilateral basis. Besides, efforts will bestrengthened to effectively monitor cross-border transportation and settlementof Renminbi, and prevent a disorderly flow of Renminbi.
Third, we need to broaden perspectives on monetary policydecision-making and establish a sound early warning system. China’smonetary policies including the plans of banknote issuance and withdrawal andthe liquidity arrangement of forex reserves will have to be adjusted incorrespondence with the fact that Renminbi has been increasingly accepted inneighboring countries and regions. An overall arrangement will help to preventand mitigate the potential financial risks.
Fourth, we will step up efforts to combat money launderingby monitoring particularly those large and suspicious payment transactions,join other relevant departments in cracking down underground bankingactivities, illicit remittance and illegal cross-border transfer of capital. Wewill strictly monitor and investigate into the large inward and outwardremittance and transfer of funds by commercial banks with unidentified sourcesand uses so as to prevent transfer of illegal proceeds obtained through moneylaundering, embezzlement, bribery, rent seeking or other crimes through theChinese banks.
Fifth, efforts will be strengthened on cracking downcross-border production and transportation of counterfeited Renminbi. We willcooperate with authorities in public security, customs, financial supervisionand the commercial banks to improve public education on currency counterfeitsand step up combat on crimes like organized transportation of counterfeitedRenminbi. Besides, working relations with counterfeit currency combatingauthorities in relevant countries and regions will be established to increaseinformation-sharing in this area.
