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News - Editor, 1 February 2011

New Yuan Exchange Law

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The U.S. been trying to convince China to take the necessary step to allow expansion and growth of their currency for a while now; after giving some thought to expansion plans and the development of the yuan, China has now introduced new laws and regulations in regard to the exchange of yuan, which they hope will assist in the promotion and development of the currency as well as the economy. Great excitement has surrounded the latest announcement, which will come into effect on 1 March 2011. It is a historical moment for China and foreign investors will be able to trade more easily from now on.

The State Administration of Foreign Exchange confirmed that non-bank clients would now be permitted to exchange yuan and various other currencies under the revised law. By allowing trade to exist more conveniently, China hopes to mobilize the growth of the yuan and the development of businesses within the country. They do, however, have their eyes set on greater expansion that could see the yuan trading as a global currency. Providing companies and businesses with the ability to avoid currency risks will benefit the economy in the long run. The State Administration of Foreign Exchange, or SAFE, said the following on their website: "The notice on business related to yuan/foreign currency swaps of bank clients is issued in order to allow domestic economic entities to hedge risks." Due to most foreign investors making use of forex, simplifying the exchange process will assist in their trade agreements and trade that is done on site and without prior negotiation can also be accommodated by the new law.

Exchange rates and the interest rate also need to be taken in consideration, and the law therefore states that exchanges are not permitted to exceed the rates that have been set by the People's Bank of China. Additional derivatives will be published by the People's Bank of China, as they will be looking in-depth at the exchange rates of other currencies such as the dollar, euro and yen, as well as deposits made directly into bank accounts and international bonds. The changes are set to bring about positive initiative and investments for China, and assist in international negotiations and business ventures.



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