Foreign currency savings drop faster
(China Daily)
Updated: 2004-03-11 23:55

The downward trend in China's foreign exchange savings quickened last month, as depositors kept betting that the local currency, or renminbi, may appreciate.

The People's Bank of China (PBOC), the central bank, said Thursday that forex savings deposits fell by an abrupt 7.5 per cent on a year-on-year basis to US$83.2 billion at the end of February.

The pace was faster than the 4.9 per cent decline recorded at the end of January.

The growth of forex savings, which was typically fast in recent years as forex assets owned by Chinese depositors expanded, started to slow down early last year and dipped to negative territory near year-end.

"Expectations that the renminbi will soon appreciate remain a major reason," said Wang Yuanhong, senior analyst with State Information Centre.

"Many people still keep converting their forex assets into renminbi," he added.

Partly as a result, renminbi savings deposits continued to rise rapidly. The PBOC said earlier total savings, of which forex account for a small fraction, jumped by an annualized 18.6 per cent to 11.63 trillion yuan (US$1.4 trillion) at the end of January.

Speculation over a revaluation of the yuan, largely prompted by pressures from countries like the United States that says the yuan is undervalued, ran higher this year. The Chinese Government has been reiterating its stance that it would not revalue the currency any time soon but will gradually improve the exchange rate forming mechanism.

Rumours about an immediate appreciation of the renminbi swirled last month as some foreign financial institutions predicted that the currency may appreciate by 5 per cent within three months.

As forex savings kept falling, forex loans continued their fast growth as businesses increasingly opted to take on forex liabilities.

Outstanding forex loans at both Chinese banks and foreign banks operating here surged by 30.3 per cent on a year-on-year basis to US$136.4 billion at the end of last month, which compares to 27.8 per cent recorded one month earlier.

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