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Rising foreign currency liquidity of banks in China

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  • Guonan Ma
  • Robert N McCauley

Abstract

China’s banking system enjoyed a $75 billion foreign currency surplus in 1999–2001. Most of this foreign currency liquidity arose from the growth of dollar deposits, and the rest from shrinking dollar loans. Understanding such surpluses provides insights into a significant source of financing for the US current account deficits in recent years. This special feature examines determinants of the demand for foreign currency deposits in Chinese banks. It is found that interest rate differentials, exchange rate concerns and the one-off effect of the liberalisation of part of China’s stock market jointly account for almost half their variation. We also analyse the recent declining trend of dollar loans booked by banks in China, and its implications for the strengthening foreign currency liquidity position of banks on the mainland.

Suggested Citation

  • Guonan Ma & Robert N McCauley, 2002. "Rising foreign currency liquidity of banks in China," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:0209h
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    References listed on IDEAS

    as
    1. Robert N McCauley & YK Mo, 2000. "Foreign currency deposits of firms and individuals with banks in China," BIS Quarterly Review, Bank for International Settlements, August.
    2. Ben S C Fung & Robert N McCauley, 2001. "Analysing the growth of Taiwanese deposits in foreign currency," BIS Quarterly Review, Bank for International Settlements, September.
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    Cited by:

    1. Philip Lane & Sergio Schmukler, 2007. "The Evolving Role of China and India in the Global Financial System," Open Economies Review, Springer, vol. 18(4), pages 499-520, September.
    2. Guonan Ma & Robert N. McCauley, 2004. "Maîtriser la croissance en Chine dans un contexte de mobilité internationale des capitaux," Revue d'Économie Financière, Programme National Persée, vol. 77(4), pages 163-185.
    3. Robert N McCauley & San-Sau Fung & Blaise Gadanecz, 2002. "Integrating the finances of East Asia," BIS Quarterly Review, Bank for International Settlements, December.
    4. Vincent Bouvatier, 2010. "Hot money inflows and monetary stability in China: how the People's Bank of China took up the challenge," Applied Economics, Taylor & Francis Journals, vol. 42(12), pages 1533-1548.
    5. Maria Semenova & Andrey Shapkin, 2019. "Currency Shifts as a Market Discipline Device: The Case of the Russian Market for Personal Deposits," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(10), pages 2149-2163, August.
    6. Schuppli, Michael & Bohl, Martin T., 2010. "Do foreign institutional investors destabilize China's A-share markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(1), pages 36-50, February.
    7. Glick, Reuven & Hutchison, Michael, 2009. "Navigating the trilemma: Capital flows and monetary policy in China," Journal of Asian Economics, Elsevier, vol. 20(3), pages 205-224, May.
    8. Philip R. Lane & Sergio L. Schmukler, 2006. "The international financial integration of China and India," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    9. Michael Schuppli & Martin T. Bohl, 2009. "Do Foreign Institutional Investors Destabilize China’s A-Share Markets?," CQE Working Papers 0909, Center for Quantitative Economics (CQE), University of Muenster.
    10. Vincent Bouvatier, 2006. "Hot Money Inflows in China: How the People's Bank of China Took up the Challenge," Post-Print halshs-00111153, HAL.
    11. Fong, Wai Mun, 2009. "Speculative trading and stock returns: A stochastic dominance analysis of the Chinese A-share market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 712-727, October.

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