China's central bank Friday said it planned to loosen rules governing foreign exchange transactions by individuals from Feb.1 2007.
In a statement posted on its Web site, it said that the move was aimed at bringing more balance to its international balance of payments position and to deepen reforms of its foreign exchange system.
The new rules, which replaced a set of 16 regulations, would allow individuals to trade foreign exchange freely under the current account as long as the transactions did not exceed annual personal foreign exchange quotas enforced in May.
Those quotas were set at an equivalent of $20,000 annually for Chinese residents. The central bank said on Friday that those quotas could change at an appropriate time.
Banks would unify foreign exchange accounts for individuals rather than splitting them up as they did currently, it said. Individuals would be allowed to use foreign currency to invest in domestic life insurance schemes, according to the new regulations. They would also be able to conduct foreign exchange transactions to borrow and lend money and trade in overseas commodity futures and financial derivatives, subject to approval from the foreign exchange regulator.
The new rules were aimed at "deepening foreign exchange management system reform" and bringing more balance to the country's international balance of payments position, it said. China has gradually nibbled away at restrictions on its capital account to facilitate greater outflows of foreign exchange.
Beijing hopes that this can help offset huge inflows which have caused its foreign exchange reserves to swell to over $1 trillion dollars. Those inflows have exacerbated global economic imbalances and made it more difficult for Beijing to manage its monetary policy.