China’s banking sector executed net foreign exchange purchases of $1.3 billion for their clients during the month of May, according to the Wang Yungui, who is a head of policy and regulations at the State Administration of Foreign Exchange (SAFE), speaking at a press conference in Beijing on Wednesday, cited by Global Times.
Thus banks were able to prove that recent concerns over the capital outflow from China’s banking sector are injustified and clients remain calm. As Wang Yungui stated, ‘banks bought a net $1.3 billion worth of foreign exchange for clients in May, showing a major turnaround.’
Moreover, he added that ‘the FX market is becoming more balanced. We hope this could help market players better allocate capital and hedge foreign exchange risks.’
SAFE’s data for the month of April provided sooner a warning message, when the institution reported that China’s banks sold a net of $17.3 billion in foreign exchange settlements. Capital inflows to China’s banking sector reached approximately $20 billion during first five months.
Nevertheless, government is trying to calm down these worries, stating that such outflows are regarded as “normal” and they can not be connected to a capital flight. Their peak has already been reached in March, related to China’s interest rate cuts and subsequent yuan weakening, and from that time we could see lower outflows.
SAFE’s Wang added that China is also intending to move forward with its currency’s convertibility on the capital account and provide helping hand to the International Monetary Fund to reconsider yuan as a currency, which should be included in the fund’s currency basket – the Special Drawing Rights (SDR). Wang stated: “China is actively trying to join the SDR, but it should be a natural process that requires all conditions to be ripe.”
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