CNH Funding and Surrender Requirements

Another significant CNH liquidity squeeze caused a strong rally in the offshore yuan, amidst reports that Chinese authorities were studying stronger capital controls and surrender requirements for foreign exchange deposits held by state-owned enterprises. Such measures are impractical given that SOEs run a persistent trade deficit, and the effectiveness of capital controls remains limited. Balance of payments details for Q3 indicate outflows are currently driven by ongoing diversification of both household and corporate savings and will therefore continue, despite authorities’ efforts to slow them down.

Posted August 1, 2017
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