|Camille Harthy |||May 29, 2015 09:58 AM EDT|
(Photo : Reuters) China is set to ease the current limits on outbound investment in a bid to make the the yuan a global reserve currency. This decision has come as a surprise to many financial experts as the state has usually maintained tight control of the yuan.
China has its eye on making the yuan a reserve currency, and in order to do so, it is prepared to do everything--- even ease the current limits on outbound investments.
The plan has surprised industry analysts as for the first time in history, forecasts suggest that China's capital going abroad is set to exceed the capital coming into the country.
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China's assistant Minister of Commerce Zhang Xiangchen said the country is in a position that will make it "a net exporter of capital." Data shows that outbound investment during the first nine months of 2014 climbed 21.6%, compared to the same period in 2013.
“This is just a matter of time; if it doesn’t happen this year then it will happen in the very near future,” Zhang said.
The Wall Street Journal reported that the strategy, which is expected to be unveiled in the "next few weeks," is aimed specifically at the government's plan to expedite its application to make the yuan the 5th reserve currency in the world, next to the dollar, euro, yen and British pound.
Earlier in the week the IMF revealed that the renminbi is no longer undervalued. The easing of state control of the yuan has occured slowly. According to CNN Money, China still sets the interest rate for the yuan daily. However, the IMF has urged authorities to make it a floating currency within a few years.
Being a reserve currency or having a "Special Drawing Rights" status from the International Monetary Fund would mean that the currency will be internationalized. This means that local companies will have an easier time investing abroad because of lower borrowing costs,according to Bloomberg.
The WSJ has revealed that the country's central bank will handle the program.
A private equity senior executive, Hans Shen, said that the although the plan is "a breakthrough" for the nation, he expects that it will still be heavily regulated and implemented with "great caution" to mitigate risks.
The plan will also affect individual investors, as much as companies or private equity firms. Reports indicate that individuals, who live in free-trade zones like Shanghai, and who have at least 1 million yuan in assets, would be able to invest on international companies.
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