New | China orders banks to stop issuing dual-currency credit cards to stem capital flight

The People’s Bank of China has ordered the country’s banks to stop issuing credit cards that allow customers to transact purchases in dual currencies, in the latest move to plug regulatory gaps and stem capital flight while the renminbi continues to sink to an eight-year low.

Credit cards issued in China with Visa or Mastercard must be replaced with those issued by the country’s dominant currency clearing company China UnionPay Co when they expire, according to a November 23 report in the Communist Party’s mouthpiece People’s Daily newspaper, citing a recent undated meeting called by the central bank with Chinese lenders.

Existing cards that offer dual-currency services can continue until their expiry, the newspaper said. Under new regulations, credit cards can be issued for either yuan-denominated transactions, or enabled for purchases in hard currency, carrying UnionPay’s logo. Visa and Mastercard must apply separately to commence credit card businesses in China.

“These moves appear to be part of the continuing clamp down on capital outflows,” said Keith Pogson, a partner in EY’s financial services practice in Hong Kong.

Dual currency services have been a feature among the credit cards issued by the Industrial & Commercial Bank of China, China Construction Bank, Bank of Communications, Pudong Development Bank, China Merchants Bank and scores of other mainland-based lenders for at least 14 years.

The service enable Chinese consumers to shop overseas, using the worldwide network and currency clearing services operated by Visa and Mastercard, while UnionPay nurses its nascent service within mainland China. As UnionPay grows in size, and expands outside China’s shores to make the renminbi accessible and usable, the second logo on the credit card becomes expendable.