China Shifts to US Currency Assets

Beijing anticipates its cross-border investments and trade money to remain unstable in 2015 after capital outflows hastened during the last quarter of last year.

This was revealed by the FOREX regulator of China yesterday.

China’s State Administration of Foreign Exchange or SAFE declared the nation’s capital and financial accounts revealed a shortfall of $91.2 billion from October until December of 2014.

This was up from $9 billion during the previous quarter.

Many Chinese residents and companies have switched to US dollar assets which stimulated the outflows.

Likewise, there are complicated and varied aspects that generate instability in overseas capital flows even as this nation continues to incur huge trade excess while the Yuan’s interest rate is higher than other currencies.

According to SAFE, the local currency’s exchange rate can stay inflexible in the interim as an emergency precaution to handle both internal and external issues.

However, the rate must change eventually to avert any disparity and distortion alterations in the economic system.

The agency said it monitors closely capital flows that cross national borders.

A number of economic analysts fear that escalating capital outflows squeezed liquidity conditions and threaten to slow down further the country’s economy. This can compel the People’s Bank of China to loosen fiscal policy more.