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Screenshot of a breaking news alert e-mail from Q2 2017
Chinese banks sold more foreign currency than they bought in March, setting a record deficit since records began in 2010.
According to Chinese news source Xinhuanet, Chinese banks bought 808.3 billion yuan ($131.4 billion) in foreign currencies and sold 1.21 trillion yuan, leading to a deficit worth 406.2 billion yuan or 66 billion U.S. dollars, according to the State Administration of Foreign Exchange (SAFE) on Thursday, with March being the eighth successive month of deficit.
This unprecedented outflow of foreign currency during March was announced just one day after Chinese officials began to implement foreign currency services in the Shanghai Free Trade Zone following a lengthy pilot, representing the ability for overseas organizations to do business, at least in part, in mainland China with less cost and entry barriers than were in place previously.
With regard to the outflow of foreign currency, Chinese banks bought 768.8 billion yuan and sold 1.12 trillion yuan in foreign currencies for clients, resulting in 356.2 billion yuan of deficit in March.
The banks themselves bought 39.5 billion yuan in foreign currencies and sold 89.4 billion yuan in foreign currencies, resulting in 49.9 billion yuan of deficit in March.
Guan Tao, head of the international payments department at the SAFE, said it’s true there are capital outflows in China, but they are expected adjustments, not covert or illegal capital flights.
The banks’ deficit in foreign exchange settlement was 8.2 billion U.S. dollars in January, 17.2 billion U.S. dollars in February and 66 billion U.S. dollars in March, resulting in 91.4 billion U.S. dollars of deficit in the first quarter, up 97 percent from the fourth quarter last year.
“Such adjustments can be explained and should not be hyped,” Guan said.
It is a common practice for banks to sell foreign currencies to firms or individuals and buy foreign currencies from them. Known as the bank exchange, it can be used to measure the supply-demand relationship in the interbank forex market and impact the yuan’s exchange rate.