The People's Bank of China (PBOC) announced on Thursday that it will allow travelers to take up to 20,000 yuan (US$2,400) of local currency out of the country beginning in January.

The last time it raised the limit on the yuan's cross-border flow was in 1993, when the ceiling was set at 6,000 yuan (US$720).

China's economy has soared during the past decade, as domestic consumption has grown steadily and offshore economic ties have expanded.

Those factors, coupled with exchange rate stability, have amplified the demand for the Chinese currency in neighboring areas, according to a central bank spokesman. Moreover, he said, the overseas spending needs of increasingly wealthy Chinese travelers have grown, with average spending more than tripling in the past decade.

Liang Hong, China economist at Goldman Sachs (Asia), said, "We view this move as a positive, albeit small, step forward in the process of removing foreign exchange controls and opening up the economy."

Liang stated that the main beneficiaries of the policy change, aside from Chinese travelers, will include Hong Kong and Macao consumer-related industries, as Chinese tourists will be able to bring more cash to spend.

The yuan has also become a major settlement currency for border trade with nations like Russia, Mongolia and Vietnam.

Economists have largely ruled out the possibility that the move is aimed at reducing the persistent upward pressure on the yuan or an attempt to promote its regionalization or internationalization.

"Policy changes to allow easier currency outflows will have limited, if any, impact toward easing the Chinese yuan appreciation pressures at present," Liang said.

"The purpose is to meet the needs of local residents and economic exchange within the region," said Qin Chijiang, a professor with the Central University of Finance and Economics. "I don't think there is any special political motive."

Qin underlined the need to build bilateral mechanisms with neighboring countries and regions to channel the yuan back to China.

The PBOC spokesman said there is only a tiny possibility that raising the ceiling will have any negative impact on the Chinese economy, citing the small proportion of yuan circulating overseas within the total money supply and arrangements with Hong Kong, Macao and some neighboring countries on return flows for the currency.

(China Daily December 3, 2004)