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Falling yuan funds from forex make room for RRR adjustment amid a weakening yuan


20:35, December 07, 2011

BEIJING, Dec. 7 (Xinhua) -- The latest data from the People's Bank of China (PBOC), China's central bank, showed that its yuan funds outstanding for foreign exchanges had dropped 89.3 billion yuan (about 14 billion U.S. dollars) as of the end of October compared to one month earlier, marking the first decrease in eight years.

According to the PBOC's balance data, the central bank's yuan funds outstanding for foreign exchanges stood at 23.3 trillion yuan by the end of October.

"Such a drop is caused by a decrease in foreign exchange receipts and settlements from individuals and companies," said Zhao Qingming, a finance expert with China Construction Bank.

Zhao denied that the drop was caused by the outflow of speculative capital or foreign capital from the country. The declining foreign exchange receipts and settlements, however, are due to market expectations of the yuan depreciating.

The central bank announced last month that yuan funds nationwide stemming from foreign exchanges decreased 24.9 billion yuan in October from September, indicating that other financial institutions, including commercial banks and credit cooperatives, had seen a net increase of yuan funds totalling 64.4 billion yuan.

Analysts say that commercialized financial institutions are inclined to hold onto greenbacks amid the yuan's weakening against the U.S. dollar recently, thus resulting in a rise in foreign currency holdings in these institutions.

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