(Yicai Global) Dec. 26 -- China's foreign exchange transactions jumped 42 percent in November, spurred by the US Federal Reserve's interest rate hike, a strong dollar and a corresponding depreciation of the yuan. The cap on personal foreign exchange purchases is expected to remain unchanged next year, insiders predict.
The total November trading volume of China's foreign exchange market rose from CNY11.32 trillion (USD1.63 trillion) in the previous month to CNY15.89 trillion (USD2.32 trillion), per State Administration of Foreign Exchange data.
Due to the strong dollar, the yuan is showing growing expectations of depreciation, and the growth of foreign exchange transactions in November was mainly caused by retail sectors driven up by the yuan-dollar rate, insiders told Yicai Global.
The interest rate hike has brought growing depreciation pressure for the yuan, which further drove up China's capital flight. In turn, growing capital flight brought more depreciation pressure for the yuan, Zhou Tianyong, deputy director of the Central Party School's Institute for International Strategic Studies told the media recently.
The regulation capping foreign currency purchases at USD50,000 made sense when China had an excess of foreign exchange reserves. In December, China's foreign reserves, the world's biggest, were predicted to drop below the USD3 trillion mark as the basket of currencies was devalued against the dollar.
Currently, foreign exchange reserves are challenged by the pressure of a shrinking yuan. The yuan tends to be depreciated whereas the US is inclined to appreciate the dollar. In the circumstances, the limit for personal foreign currency purchase of USD50, 000 should be reduced., Zhou said.