Balance of PBOC's Funds Outstanding for Foreign Exchange Drops for 21st Straight Month
Dou Shicong
DATE:  Aug 16 2017
/ SOURCE:  Yicai
Balance of PBOC's Funds Outstanding for Foreign Exchange Drops for 21st Straight Month Balance of PBOC's Funds Outstanding for Foreign Exchange Drops for 21st Straight Month

(Yicai Global) Aug. 16 -- The People's Bank of China's balance of funds outstanding for foreign exchange decreased by USD694.7 million (CNY4.65 billion) to CNY21.5 trillion in last month, marking 21 straight months of decline. The drop was less than June's CNY34.32 billion.

The yuan has appreciated since the end of June and its central parity rate against the US dollar rose from August 8 to August 14. As China's economic data in the first half exceeded expectations, and the yuan has been gaining strength while the dollar has slumped, the downward trend of funds outstanding for PBOC's foreign exchange will likely turn around, industry insiders said.

Funds outstanding for foreign exchange refers to yuan invested by China's central bank after it purchased foreign currency assets of commercial banks. Since the yuan is a non-freely convertible currency, foreign capital needs to be converted into yuan for circulation, a process the state spends a significant amount of money on. The state needs to use its own currency to buy foreign ones, which increases money supply and creates the funds outstanding for foreign exchange.

The yuan's recent appreciation may be a result of the release of earlier demand on compensatory growth, which still has space to expand in the future, the chief analyst of Northeast Securities Inc.'s fixed income department said. As the yuan rises in value, Chinese enterprises' settlement and sale of foreign exchange may gradually decrease in the second half, leading to a large net inflow of funds outstanding for foreign exchange.

Funds outstanding for foreign exchange may fluctuate in the short term, but will remain stable overall, experts predicted.

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Keywords:   Pboc,Money Supply,Funds Outstanding For Foreign Exchange,Yuan Appreciation