Chinese banks have seen their foreign currency deposits surge by over $260 billion in the first five months of 2021, putting the pool’s total growth to above $1 trillion for the first time.
According to data published by the People’s Bank of China (PBOC), the communist country’s commercial banks reported a combined record $1.38 trillion in foreign exchange at the end of May, with most being held in deposits. Similarly, the PBOC’s foreign reserves also surged to the highest in five years last month.
The latest growth comes as the demand for Chinese goods during the Covid-19 crisis accelerated exporters’ foreign earnings. The country’s robust economic recovery and strong currency have prompted foreign investors to sell their dollar holdings and purchase yuan instead, in order to buy Chinese bonds and stocks.
The sudden surge in capital inflows have caused China’s dollar deposit rates to collapse to near all-time lows. China’s central bank has already taken a proactive approach in cutting back dollar liquidity, including relaxing capital controls.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.