China Intensifies Monitoring of Cross-Border Capital Flows

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Jun. 14 – China plans to strengthen monitoring of cross-border capital flows to reduce risk, according to China’s foreign exchange regulator on Thursday.

The State Administration of Foreign Exchange (SAFE) said in its annual report on management of foreign exchange that the regulator will focus on the economic and financial situation this year. The report also stated that it will enhance the monitoring level, especially of the abnormal cross-border capital flows, by cracking down on illegal private banks and internet-based speculation in foreign exchange.

Furthermore, the SAFE will keep a prudent approach to managing foreign currency reserves and will continue work on its diversification strategy. China’s foreign exchange reserves hit US$2.4 trillion by the end of 2009, an increase of US$453 billion from 2008.

China’s gold reserves hit 1,054 tons in 2009, marking the fifth largest in the world. Although gold has commodity and monetary values, the global gold market is relatively small and illiquid, said the SAFE’s report, due to its volatile price and high cost of holding and trading, gold has limited utility in asset allocation.