Hong Kong Yuan Deposits Drop in August Amid Currency Devaluation

  • Sentiment on currency has worsened, says China Everbright
  • Largest offshore yuan pool shrinks 1.5% to 979 billion yuan

Yuan deposits in Hong Kong in August shrank for the first time in five months after China’s surprise devaluation triggered a move out of assets denominated in the currency.

Savings fell 15 billion yuan ($2.4 billion) from July to 979 billion yuan, the Hong Kong Monetary Authority said in a statement on its website on Wednesday. The city, which holds the world’s biggest pool of offshore yuan, handled 727.9 billion yuan of trade settled in the currency in August, up from 583.6 billion in the previous month.

The yuan tumbled 2.6 percent in August in the biggest monthly slide since 1994 after an Aug. 11 devaluation fueled concern the authorities were weakening the currency to help exports and boost economic growth. Asset reallocation away from yuan has spurred demand for the Hong Kong dollar, prompting almost $7 billion of greenback purchases by the city’s monetary authority in September to prevent the currency from rising beyond the HK$7.75 upper limit of its peg.

The yuan devaluation "was the main factor" for the decline in deposits, said Ngan Kim Man, deputy head of treasury at China Everbright Bank Co.’s Hong Kong branch. "The sentiment on the yuan has definitely changed. We’ve seen some unwinding of long yuan positions that were converted into Hong Kong dollars."

The downtrend in yuan savings probably continued in September, an HKMA spokesperson said in an e-mail to Bloomberg, citing information from local banks. The authority said it hasn’t received this month’s deposit figure.

The People’s Bank of China last month revamped the methodology used to determine the yuan’s reference rate, which restricts the spot rate to moves of a maximum 2 percent on either side. Under the new regime, market makers who submit contributing prices have to consider the previous day’s close, foreign-exchange demand and supply, as well as changes in major currency rates.

The PBOC has been seen intervening in both the onshore and offshore markets to prop up its exchange rate in recent weeks. The currency in Shanghai closed 0.1 percent higher at 6.3571 a dollar, while the rate in Hong Kong fell 0.16 percent to 6.3530 as of 5:32 p.m. local time.