Author: Zhang Feng
After the operation of the Hainan port closure, the renminbi within its borders has not changed its fundamental attribute as domestic renminbi. However, within the EF account system, it has been granted a highly similar offshore renminbi convenience function. Therefore, it can be summarized as 'overall onshore, account-type offshore'.
1. The entire region remains domestic renminbi (CNY)
It must first be clarified that Hainan Free Trade Port is a special area under the supervision of Chinese customs, rather than a sovereign external area of 'outside customs'. It is still within China's customs territory and currency sovereignty jurisdiction.
Therefore, the RMB circulating and stored throughout Hainan Island has the same legal nature as the RMB in Shanghai, Beijing, and other places, all belonging to domestic RMB (CNY), unified under the supervision of the People's Bank of China, executing the same monetary policy and clearing rules.
For ordinary Hainan residents and enterprises opening ordinary savings or settlement accounts at banks, the RMB within has no difference from funds in mainland accounts; daily deposits, withdrawals, transfers, consumption, and other businesses fully follow mainland rules, unaffected by the closure operation. The closure changes the management rules for cross-border and cross "second line" funds, not the legal status of the RMB itself.
II. The "offshore-like" characteristics of RMB in the EF account
However, the EF account (multi-functional free trade account) in Hainan Free Trade Port is the core tool for financial opening, providing an integrated and freely exchangeable bank account system for entities within the region and overseas institutions. Through the EF account, enterprises can efficiently manage cross-border revenues and expenditures, reduce foreign exchange costs, and engage in cross-border financing, cash pooling, and other businesses, effectively supporting the liberalization and facilitation of trade and investment in the free trade port.
The EF account has opened up a channel for cross-border capital flow, allowing funds to conveniently enter and exit in the "first line" and limited penetration in the "second line," significantly enhancing trade and investment facilitation. The Hainan Free Trade Port EF account system has implemented account-based accounting through "electronic fence" technology. This means that RMB deposited in the EF account, while legally considered CNY, enjoys functions similar to offshore RMB (CNH).
For EFT accounts (overseas institutions): The RMB inside can be freely exchanged with foreign currencies abroad, exchange based on commercial instructions, with no limit, fully serving international trade settlement and investment needs.
For EFP accounts (qualified individuals): After meeting certain conditions (such as residing, working, or studying in Hainan for more than one year and having legal income proof), they can enjoy exchange convenience for cross-border investment and purchasing financial products within the limits.
For EFE accounts (enterprises in the free trade port): When trading and directly investing with foreign countries in the "first line," the exchange between RMB and foreign currencies is also highly free and convenient.
III. Essential differences between EF account RMB and traditional offshore RMB (CNH)
Equating RMB in Hainan EF accounts with traditional offshore RMB (such as Hong Kong's CNH) is a misunderstanding. The two have fundamental differences.
Different regulatory sovereignty: CNH exists in the offshore market outside China's sovereign jurisdiction, primarily regulated by financial regulatory agencies in places like Hong Kong; while RMB in Hainan EF accounts is under the direct supervision of the People's Bank of China within the "electronic fence," representing "offshore facilitation under domestic regulation."
Different exchange rate formation mechanisms: CNH exchange rates are determined by supply and demand in the offshore market, often differing from onshore CNY rates (exchange rate differences); RMB in Hainan EF accounts can choose either CNY or CNH exchange rates, giving enterprises the choice, which effectively smooths potential arbitrage space.
Unlike the connectivity with the mainland market: CNH funds entering the mainland are strictly controlled (such as channel quota restrictions); while there is a compliant, transparent, and controllable "second line" penetration channel (such as the 1 times owner's equity limit mentioned earlier) between the Hainan EF account and ordinary mainland accounts, maintaining an organic connection with the mainland economy.
Therefore, Hainan's RMB model is an innovative "domestic-offshore" arrangement that absorbs the convenience of the offshore market while firmly rooted in the regulatory framework of the onshore market, representing a more controllable risk exploration of opening up.
IV. Core differences between EF accounts and ordinary accounts comparison
Comparison dimensions
EF Account (Free Trade Account)
Ordinary bank accounts (Hainan/Mainland)
Account positioning
Main channel for cross-border capital flow in the free trade port, account-based accounting, electronic fence management, with "domestic offshore" functionality.
Domestic conventional capital accounts for daily income and expenditure.
Account subject
Enterprises registered in Hainan Free Trade Port (EFE), qualified individuals (EFP), overseas institutions (EFT), and banks within the region (EFB).
Domestic individuals or enterprises (without special regional restrictions).
Cross-border settlement rules (first line)
Free transfer with overseas accounts, no prior approval, multi-currency settlement.
Must comply with foreign exchange management regulations, submit authenticity materials, and approval/filing is required for capital items.
Cross-second line settlement rules
Transfer of RMB with ordinary domestic accounts, subject to quota management (such as 1 times owner's equity for enterprises) and negative list restrictions.
Free transfer of RMB with other domestic accounts, with no quota restrictions.
RMB to foreign currency
Enterprises/overseas institutions: Free exchange, no quota restrictions.
Individuals (meeting conditions): Convenient exchange within the limits.
Individuals: Annual foreign exchange quota equivalent to $50,000.
Enterprises: Required exchange under trade, approval needed under capital items.
Applicable scenarios
Cross-border trade, investment and financing, offshore finance, bulk commodity trading, cross-border e-commerce, etc.
Daily consumption, domestic trade, domestic investment, ordinary transfers.
Supervision model
Primarily relying on post-event verification, tracking the entire process through monitoring platforms, macro-prudential + negative list management.
Preliminary review (cross-border business) + daily supervision, following regular foreign exchange and RMB management regulations.
Rates and efficiency
Low handling fees, fast fund arrival (often real-time), with the option to freely choose onshore (CNY) or offshore (CNH) exchange rates.
Relatively high handling fees, slower arrival (1-3 working days), using only onshore (CNY) exchange rates.
For enterprises, EF account opening requires ensuring that the registered location is within the Hainan Free Trade Port and that actual business activities align with the free trade port's industrial policies, strictly prohibiting shell companies from opening accounts for arbitrage. Transfers of funds between the second line must strictly adhere to the negative list and must not illegally flow into restricted areas such as real estate and virtual currency.
For individuals, opening an EFP account requires providing proof of residence, social security payment records, and other materials; forging materials to open accounts is strictly prohibited. Personal cross-border exchange funds must be used for compliant investments and not for illegal activities such as overseas securities speculation or cross-border gambling.
In summary, EF account funds must genuinely match business backgrounds, strictly prohibiting the use of EF accounts for money laundering, tax evasion, illegal foreign exchange operations, etc., and banks and regulatory departments will conduct penetrating verification of abnormal transactions.
V. The path for promoting RMB free exchange: phased, gradual, and risk-controlled
Regarding the question of "whether foreign currency can be freely exchanged," the answer is not simply "yes" or "no," but should be understood as: In Hainan, a tiered and gradual foreign and domestic currency exchange facilitation system centered on EF accounts is steadily being built, with the ultimate goal of achieving the convertibility of RMB capital projects, but the entire process insists on risk control.
(1) Current account differentiated exchange convenience
Currently, Hainan's RMB exchange policy presents a distinct characteristic of "account differentiation," which is an intuitive reflection of the "phased" advancement:
Within the EF account system: highly facilitated free exchange has been achieved. Enterprises and overseas institutions can freely exchange RMB and foreign currencies at market rates when handling compliant cross-border trade, direct investment, etc., with no additional quota restrictions and simplified processes. Individuals, after meeting specific conditions, also enjoy cross-border investment exchange convenience superior to ordinary mainland accounts.
In ordinary bank accounts: The policy for RMB exchange to foreign currencies is completely consistent with the mainland. Individuals are still subject to the annual foreign exchange quota equivalent to $50,000; enterprises must follow the "actual need principle," requiring approval for capital item exchanges. This ensures that in the early closure stage, the irrational or speculative large foreign exchange purchase demands of individuals do not impact the stability of the national foreign exchange market.
(2) A clear "three-step" strategic plan for the future
According to the (Overall Plan for the Construction of Hainan Free Trade Port), the promotion of RMB free exchange is a systematic long-term plan:
First phase (initial closure operation): Focus on facilitating trade and investment. Fully realize the free exchange of settlement under goods trade and service trade, greatly simplifying the exchange process for cross-border direct investment. Currently, the operation of EF accounts has basically achieved the goals of this phase.
Second phase (3-5 years after closure): Gradually expand the opening of capital projects. Under the premise of controllable risks, pilot the promotion of cross-border securities investment (such as an upgraded version of the "cross-border wealth management connect"), and more flexible cross-border financing exchange conveniences. At the same time, it may cautiously relax the "second line" penetration quotas between EF accounts and mainland accounts, enhancing the link between internal and external circulation.
Third phase (mature operation period of the free trade port): The ultimate goal is to basically achieve the convertibility of RMB capital projects. Forming a more flexible flow of funds between EF accounts and domestic accounts, creating a financial ecosystem that deeply integrates domestic and international markets, making Hainan an important window and testing ground for RMB internationalization.
(3) Mechanism to ensure a smooth and orderly opening process
Such a significant degree of openness is not without constraints. To ensure a smooth process of exchange liberalization, a set of strict supporting guarantee mechanisms has been established simultaneously:
Macro-prudential management: The central bank can guide and control the scale and pace of cross-border capital flows from an overall perspective through adjusting macro-prudential regulatory parameters for all-inclusive cross-border financing and other tools.
Negative list management: Clearly listing prohibited areas for exchange, such as money laundering, terrorist financing, purely speculative short-term capital flows, etc., to ensure that financial opening is not used for illegal activities.
Technological monitoring and penetrating supervision: The cross-border capital flow monitoring platform plays an "eagle eye" role, conducting real-time monitoring and early warning of abnormal transactions and large capital flows, achieving precise prevention and control.