The State Administration of Foreign Exchange announced Thursday it will scrap its US$5 billion quota for foreign currency purchases by domestic firms investing abroad from July 1. The relaxation of capital controls is aimed at offsetting huge inflows of foreign exchange, which has caused China's money supply and new loans to skyrocket. It will also provide a boost to domestic companies trying to establish operations offshore. China's reserves have reached US$875.1 billion, driven by the central bank's purchases of US dollars to offset China's balance of payments surplus. The announcement is expected to have limited impact as the regulator had previously flagged an intention to abolish the capital control during 2006 and existing quotas are currently underused.
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