What's going on?

According to various media reports, the Chinese government is taking further steps to stop money from getting out of the country (tweet this) � and that�s a big deal for everyone else.

What does this mean?

China�s currency has fallen more than 10% versus the US dollar over the past 15 months (read more about that here). It�s now at an eight-year low versus the US dollar. Lots of people and companies are trying to get their money out of China. In order to prevent its currency from falling precipitously in value, China has been directly buying the yuan (which, of course, props up its value). This has contributed to a big depletion of China�s piggy bank of savings (which are kept in other currencies, like the US dollar, and are technically called its �foreign exchange reserves�). By making it harder to move money out of the country, China is probably trying to limit the amount it has to spend buying the yuan in order to protect it from falling sharply in value.

Why should I care?

For markets: If enacted, tighter controls on money leaving China would likely be a negative force for lots of international investments.
A huge amount of Chinese money has been ploughed into investments outside of China in recent years, e.g. Vancouver real estate. Also, 2016 has been a record year for Chinese companies buying international ones � which is a form of money leaving China. Another example: this year�s huge rally in metal prices was likely, in part, driven by people swapping out of yuan into physical commodities like metals. It�s worth watching how stringent any new regulations on money leaving China will be.


The bigger picture: China was supposed to make its currency easier, not harder, to trade.
When the yuan was given status as one of the International Monetary Fund�s �reserve currencies� (joining other major currencies), China pledged to continue to makes it currency more freely tradeable. Tighter controls would be a move in the opposite direction and would be taken, by many, as China backing away from its commitment.