On the Increased FX Reserves and the Decreased Funds Outstanding for FX in China from 2014 to 2017

Han Zhang,Jia An

doi:10.17485/ijst/2019/v12i9/120099

Abstract

Objectives: This study focuses on the off-normal occurrence between the increased FX reserves and the decreased Funds Outstanding for FX in China after 8.11 exchange rate reforms, and discusses the inducement induced between the decrease of ESS of Commercial Banks and the increased FX reserves. Methods/Statistical Analysis: This study uses the data of HIBOR and SHIBOR, the data of Spot and NDF from 2014-2017 as independent variables, approach the correlation between ESS and the four factors above by Grainger Causality Test, and then by the VAR Modal for re-test. Discusses the reason based on the reality. Findings: This study finding is that the expectations for RMB exchange rate leads to the currency hedging, which is also the reason for the ESS deficit. But this result can’t give an answer to the increased FX reserves for that time. Application/Improvements: This study explores the incentives why the banking settlement and sale transferred from surplus to deficit based on the data of banking settlement and sale, the interest rate data of SHIBOR and HIBOR, the exchange rate data of Spot onshore and NDF offshore from 2014 to 2017, and demonstrate such a statement that \

Highlights

Since 8.11 Reform of RMB Exchange Rate, the trend of cross-border capital flow in & out of China has become more complicated, and there have been a paradox under this complicated situation: Firstly, From December of 2015 to January of 2016, the RMB exchange rate against the U.S dollar fell from 6.3981 to 6.5939 suddenly, the depreciation rate of 3.06%
In order to solve the problems we raised above, this paper explore the incentives why the banking settlement and sale transferred from surplus to deficit based on the data of banking settlement and sale, the interest rate data of SHIBOR and HIBOR, the exchange rate data of Spot onshore and NDF offshore from 2014 to 2017, and demonstrate such a statement that “the FX assets are shifted from central bank holdings to business and individuals holdings”
The purpose of this study is to analyze the causes of the fluctuation of bank settlement and exchange in the last two years under the new situation after the 811 exchange rate reform, and to confirm the nature of the current capital flow, that is, arbitrage or hedging

Summary

Introduction

Since 8.11 Reform of RMB Exchange Rate, the trend of cross-border capital flow in & out of China has become more complicated, and there have been a paradox under this complicated situation: Firstly, From December of 2015 to January of 2016, the RMB exchange rate against the U.S dollar fell from 6.3981 to 6.5939 suddenly, the depreciation rate of 3.06%. The deficit of foreign exchange settlement and sale expanded rapidly from 466 billion to 600 million RMB yuan per month. The deficit of foreign exchange settlement and sale in the same period was expanded rapidly from 83 billion to 200 million RMB yuan per month. Because of the two basically same depreciation did not lead to the same amount of capital flow, some articles believe that the traditional price volume relationship has weakened since the 8.11 reform. From the beginning of November 2016, the RMB exchange rate against the dollar declined from 6.7847 to 6.9370 at the end of December, the depreciation rate of 2.3%, the deficit of the banking settlement and sale was expanded from 274 billion to 300 million RMB yuan, the price volume relation tends to be normal. Why the same rate of depreciation leads to different amounts of capital flow?

Objectives

Methods

Findings

Conclusion