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Chinese banks' forex deposits surpass $1 trillion for the first time
China's commercial lenders had a record $1.38 trillion of foreign exchange by the end of May, with the majority being held in deposits, according to the People's Bank of China.
Bloomberg News | Bloomberg Last Updated at June 25, 2021 09:06 IST
Chinese banks’ stockpile of foreign-currency deposits has surpassed $1 trillion for the first time, creating an opportunity for Beijing to allow greater freedom for capital to flow out of the country.
The pool has been growing as surging demand for Chinese goods during the pandemic has beefed up foreign earnings of exporters, while the resilient economy and strengthening currency have lured overseas investors to sell dollars for yuan to buy Chinese stocks and bonds. Bank deposits in foreign currencies jumped more than $260 billion in the year through May, the most in data starting in 2002.
Then a mismatch sets in: despite the increase in inflows, Chinese banks don’t have many channels to utilize their foreign exchange. One way is to sell it onshore, but that adds pressure for the yuan to strengthen. The currency is already trading near a five-year high against a basket of its peers -- adding urgency for Beijing to reform its foreign-exchange market and ease capital controls, moves that will act as a pressure-relief valve by letting local investors buy more overseas assets.
“Strong capital inflows offer a good window for China to carry out capital-account reforms and relax two-way capital flows,” said Linan Liu, greater China macro strategist at Deutsche Bank AG in Hong Kong. “I expect further relaxation of capital outflows via investment schemes.”
China’s commercial lenders had a record $1.38 trillion of foreign exchange by the end of May, with the majority being held in deposits, according to the People’s Bank of China. Lenders used most of the cash to make loans to firms onshore and overseas, the data showed. The PBOC’s foreign reserves also rose to a five-year high last month.
The accumulation was a result of rapid capital inflows. Overseas investors snapped up 1 trillion yuan ($154 billion) of onshore bonds over the past year, attracted by the relatively high yields on yuan-denominated debt. At the same time, China’s exports surged as its factories returned to operation while the rest of the world was still mired in the pandemic, boosting its trade surplus to a record.
www.business-standard.com
China's commercial lenders had a record $1.38 trillion of foreign exchange by the end of May, with the majority being held in deposits, according to the People's Bank of China.
Bloomberg News | Bloomberg Last Updated at June 25, 2021 09:06 IST
Chinese banks’ stockpile of foreign-currency deposits has surpassed $1 trillion for the first time, creating an opportunity for Beijing to allow greater freedom for capital to flow out of the country.
The pool has been growing as surging demand for Chinese goods during the pandemic has beefed up foreign earnings of exporters, while the resilient economy and strengthening currency have lured overseas investors to sell dollars for yuan to buy Chinese stocks and bonds. Bank deposits in foreign currencies jumped more than $260 billion in the year through May, the most in data starting in 2002.
Then a mismatch sets in: despite the increase in inflows, Chinese banks don’t have many channels to utilize their foreign exchange. One way is to sell it onshore, but that adds pressure for the yuan to strengthen. The currency is already trading near a five-year high against a basket of its peers -- adding urgency for Beijing to reform its foreign-exchange market and ease capital controls, moves that will act as a pressure-relief valve by letting local investors buy more overseas assets.
“Strong capital inflows offer a good window for China to carry out capital-account reforms and relax two-way capital flows,” said Linan Liu, greater China macro strategist at Deutsche Bank AG in Hong Kong. “I expect further relaxation of capital outflows via investment schemes.”
China’s commercial lenders had a record $1.38 trillion of foreign exchange by the end of May, with the majority being held in deposits, according to the People’s Bank of China. Lenders used most of the cash to make loans to firms onshore and overseas, the data showed. The PBOC’s foreign reserves also rose to a five-year high last month.
The accumulation was a result of rapid capital inflows. Overseas investors snapped up 1 trillion yuan ($154 billion) of onshore bonds over the past year, attracted by the relatively high yields on yuan-denominated debt. At the same time, China’s exports surged as its factories returned to operation while the rest of the world was still mired in the pandemic, boosting its trade surplus to a record.
Chinese banks' forex deposits surpass $1 trillion for the first time
China's commercial lenders had a record $1.38 trillion of foreign exchange by the end of May, with the majority being held in deposits, according to the People's Bank of China.
