Chart: foreign currencies deposits increased sharply in China29 June, 2012, 15:35. Posted by Zarathustra
Most of the time, our main focus of Chinese monetary statistics have been on the the money supply, deposits and loans data in Chinese Yuan terms. What we have overlooked is a recent sharp increase in the foreign currencies deposits.
The People’s Bank of China’s data show that foreign currencies deposits have been rising very rapidly since late last year. In particular, foreign currencies deposits from non-financial companies have increased very rapidly. Non-financial companies foreign currency deposits amounted to US$256.6 billion at the end of May, a 72% increase from a year ago.
Meanwhile, foreign currency deposits from household remains relatively stable.
Source: People’s Bank of China
For the time being, we do not have definite explanation for this. We would speculate that the expectation of depreciation contributes partly to the rise in foreign currencies deposits. Obviously, as Chinese Yuan was expected to appreciate in the past, it made sense for companies to borrow US dollar (that is short US dollar) and long Chinese Yuan. As this expectation faded and depreciation starts, it now makes sense for those who was short US dollar to cover the position by buying US dollar.