UPDATE 1-China FX deposits swell to record $1.01 trillion in May

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SHANGHAI, June 10 (Reuters) – China’s foreign exchange deposits hit a record high of $1.01 trillion at the end of May, compared with $1 trillion a month earlier, the central bank said on Thursday.

Foreign exchange deposits have been steadily growing since last year, boosted by China’s huge trade surplus and continued capital inflows into Chinese stocks and bonds. Foreign holdings of Chinese bonds hit a record last month.

The People’s Bank of China (PBOC) said the foreign cash deposits grew 35.7% year-on-year, and were up by $9.4 billion from a month ago.

A mountain of dollars on deposit in China has grown so large that banks are struggling to lend the currency. Traders say it poses a risk to official efforts to control a fast-rising yuan.

The yuan has gained about 12% against the dollar since May 2020, hitting its strongest levels in more than three years.

The rapid appreciation has prompted policymakers to announce a slew of measures recently to rein in the rally.

Many policymakers have warned market participants against betting on one-sided moves in the currency, and the PBOC raised the reserve requirement ratio on foreign exchange deposits for the first time in 14 years, in an attempt to tighten foreign currency liquidity.

Earlier on Thursday, the FX regulator said two-way volatility in the yuan exchange rate would become normal, and called for companies to hedge their FX risks.

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