Beijing tightened its grip over foreign currency flows yesterday by introducing a series of policies including a daily floor for banks' foreign currency holdings, highlighting worries over hot money.
A circular issued by the State Administration of Foreign Exchange said stricter scrutiny would apply to a variety of sources of speculative capital that can threaten financial security.
The government has become more alert to speculative capital following a record US$100 billion jump in the mainland's foreign-exchange reserves in September and the US Federal Reserve's decision to pump another US$600 billion into its economy last week.
The latest move by the authorities was aimed at cracking down on 'all kinds of illegal capital inflows' and preventing financial risks that accompany hot money inflows, the currency regulator said.
Under the new policies, which came into effect from yesterday, a bank's daily net dollar position - in expired forward contracts and spot greenback holdings - should not be less than the levels on Monday.
'This makes a big difference as the regulator used to cap lenders' holding of foreign currencies,' said Lu Zhengwei, an economist with the Industrial Bank.
