Drop of forex settlement surplus to benefit exports

Statistics released by the State Administration of Foreign Exchange on Tuesday show that Chinese banks purchased foreign currencies worth 926.7 billion yuan ($150.6 billion) in April and sold as much as 867 billion yuan, with a settlement surplus of 59.7 billion yuan - a decline of 186.8 billion yuan from March.

Slump in net forex purchases indicates that companies and residents in China were more willing to hold on to their foreign currencies rather than selling them due to Chinese yuan depreciation.

As of end-February, the trend of renminbi appreciation has reversed. Up to now, the real effective exchange rate of renminbi has depreciated by 3.2 percent, meaning about 1,940 yuan more has to be paid to exchange $10,000.

For starters, the significant decrease of forex settlement reflects a sharp drop of renminbi arbitrage, roughly meeting the central bank's target of curbing arbitrage transactions; meanwhile, it could largely ease the upward pressure on the Chinese yuan, thus creating favorable conditions for the upturn of the country's export; last, along with the substantial decline of foreign exchange purchases, highly leveraged industries will start unburdening debt in China, leading to a big drop in speculative investment activities.

With the inflow of hot money slowing down and renminbi arbitrage transactions declining, the market will gradually return to normalcy and exports will further rebound.

The author is a certified financial planner and independent commentator. The views do not necessarily reflect those of China Daily. 

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