China’s Yuan Positions Fall by a Record, Signaling More Outflows

Yuan positions at China’s central bank and financial institutions fell by the most on record in July, a sign capital outflows picked up and the central bank stepped up intervention to support the yuan.

Yuan positions on the balance sheet of the People’s Bank of China totaled 26.4 trillion yuan ($4.13 trillion) at the end of July, according to data on the authority’s website. That’s a drop of 308 billion yuan from a month earlier, based on Bloomberg calculations. Yuan positions at Chinese financial institutions accumulated from foreign-exchange purchases fell by 249.1 billion yuan to 28.9 trillion yuan.

“The drop was both due to a trend of diversifying assets and market expectations of a Federal Reserve interest-rate rise,” said Hu Yuexiao, an economist at Shanghai Securities Co. “The combination of a current-account surplus and a capital-account deficit won’t change for a long time.”

The 58.9 billion yuan difference in the size of the declines were due to an increasing willingness among individuals to hold foreign currencies, Hu added.

The data come days after the People’s Bank of China devalued the yuan, triggering the currency’s steepest slide in two decades, and announced a shift to a more market-driven exchange-rate mechanism. The changes follow interventions to prop up the yuan that contributed to a decline of almost $300 billion in the nation’s foreign-exchange reserves over the last four quarters.

The central bank has lowered banks’ reserve-ratio requirements this year in moves economists said were designed to compensate for such losses in liquidity.

— With assistance by Xiaoqing Pi

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