china erhöht foreign-currancy ration
China Raises Foreign-Currency Ratio to Ease Pressure
By Christina Soon
Aug. 30 (Bloomberg)
China ordered lenders to increase the amount of foreign-currency they hold at the central bank for the first time since 2004, limiting cash available for investment and easing pressure on the yuan to strengthen.
Banks must keep 4 percent of their non-yuan deposits as reserves, compared with 3 percent currently, according to a People's Bank of China circular to the country's banks, obtained by Bloomberg. The reserve ratio takes effect from Sept. 15, according to the notice.
The requirement will reduce the supply of dollars circulating in a nation with $941 billion of currency reserves, the world's largest, slowing gains in the yuan. The government wants to avoid inflation and control the country's investment boom, which spurred the economy's 11.3 percent growth in the second quarter and caused commodity prices to soar.
The move ``is to contain domestic borrowing and upward pressure on the yuan,'' James Malcolm, a currency strategist at Deutsche Bank AG in Singapore, said today. ``It's another step in a series of recent tightening measures that we've seen.''
The foreign-currency reserve ratio was set at 3 percent in November 2004. Foreign banks previously had to set aside 5 percent of foreign-currency deposits with a term of less than three months, and 3 percent of those with longer maturities.
By increasing the reserves, the central bank will be able to reduce about $1.6 billion of funds from the financial system, the newspaper said. Financial institutions had an excess in liquidity of about $161 billion of foreign deposits at the end of June, it reported.
Growth in China's foreign-currency reserves will still help strengthen the yuan, said Liang Hong, senior economist at Goldman Sachs Group Inc. in Hong Kong.
``The decision will indirectly help to lower yuan appreciation pressure,'' Guo said. ``China doesn't want the currency to rise in one step. Yuan gains will continue, but they will be gradual.''