The Communist Party of China’s central bank announced a trace increase in foreign exchange account data in January, a far cry from the size of the bank’s surplus in foreign exchange settlement and sales on behalf of its customers in the same month, leaving the destination of the huge amount of funds a mystery.
Bloomberg reported on Feb. 23 that on the evening of Feb. 22 local Time, the CCP’s central bank announced that the foreign exchange account rose by CNY 9.2 billion in January, the largest year-over-year increase since July 2018, but there was a CNY 263.7 billion surplus in bank correspondent foreign exchange settlements for the month.
According to estimates by Ji Tianhe, head of foreign exchange and local market strategy at BNP Paribas China, net foreign exchange inflows into the banking system, including the central bank, reached CNY206 billion in the month, the second consecutive month exceeding CNY200 billion in size. The banking system absorbed these foreign exchange inflows, but did not form the central bank’s foreign exchange account.
Ji Tianhe said, “The central bank and the banking system may have balanced these inflow pressures to stabilize the balance of payments by operating on a corresponding scale that the public data failed to capture.”
Ji Tianhe estimated the size of the banking system’s foreign exchange purchases and sales based on data on receipts and payments, central bank and bank balance sheets, and other data. This indicator was largely consistent with movements in foreign exchange holdings until the central bank withdrew from regular market interventions in early 2017, and has been significantly decoupled since then. Since October last year, net inflows into the banking system under this caliber have accumulated 711 billion yuan, while the central bank’s foreign exchange account has decreased by 22.5 billion yuan over the same period.
Bloomberg reported that there is no official data on the destination of these foreign exchange funds. As the monthly appreciation and depreciation of the yuan exchange rate does not correlate well with the difference between the settlement and sale of foreign exchange on behalf of customers, it is also impossible to prove whether these funds entered the interbank foreign exchange market and were reflected in the exchange rate changes.
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