Yuan deposits held by banks operating in Taiwan at the end of last month dropped for a fourth straight month, in part due to the Chinese currency’s weakening against the US dollar, the central bank said.
The balance of yuan deposits received by Taiwanese banks, including negotiable certificates of deposit (NCDs), totaled 311.28 billion yuan (US$48.34 billion) at the end of last month, down 4.28 billion yuan from the end of April.
Many investors in Taiwan decided not to renew their yuan time deposit contracts after the agreements expired as the yuan weakened, said Ho Pei-chen (賀培真), a specialist with the central bank.
Another factor was the use of yuan by some Taiwanese life insurance companies to finance their overseas investments last month, leading to a smaller balance in their yuan deposit accounts at the end of the month.
The central bank said that yuan deposits taken by banks’ domestic banking units (DBUs) fell to 279.78 billion yuan at the end of last month, down from 284.76 billion yuan at the end of April, while the balance held by banks’ offshore banking units (OBUs) rose to 30.49 billion yuan, up from 29.79 billion yuan a month earlier.
Amid expectations that the US Federal Reerve would raise its key interest rates at a policy meeting in the middle of this month, investors last month cut their holdings of non-US dollar currencies, including the yuan, Ho said.
As expected, the Fed last week raised interest rates by 0.25 percentage points to between 1.75 and 2 percent, the highest since September 2008, as the US economy remains on the path to a strong recovery.
With the Fed expected to raise interest rates further for the rest of this year, non-greenback currencies are likely to move lower, analysts said.
Meanwhile, yuan-denominated remittances totaled 100.58 billion yuan last month, down from 112.72 billion yuan in April, with remittances through DBUs at 60.74 billion yuan and OBUs at 39.84 billion yuan, central bank data showed.
Local banks’ DBUs have been able to conduct yuan-denominated transactions, including taking yuan deposits, since February 2013, when the central bank lifted a ban on the practice amid improving cross-strait financial exchanges at the time.
Before the ban was lifted, only the OBUs of Taiwanese banks were allowed to take yuan deposits and conduct other yuan transactions.
Since the opening, the highest the yuan deposit balance of banks in Taiwan has been was 338.22 billion yuan in June 2015.
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