Chinese banks’ stockpile of foreign-currency deposits has surpassed $1 trillion for the first time, creating an opportunity for Beijing to allow greater freedom for capital to flow out of the country. The pool has been growing as surging demand for Chinese goods during the pandemic has beefed up foreign earnings of exporters, while the resilient economy and strengthening currency have lured overseas investors to sell dollars for yuan to buy Chinese stocks and bonds. Bank deposits in foreign currencies jumped more than $260 billion in the year through May, the most in data starting in 2002. Then a mismatch sets in: despite the increase in inflows, Chinese banks don’t have many channels to utilize their foreign exchange. One way is to sell it onshore, but that adds pressure for the yuan to strengthen. The currency is already trading near a five-year high against a basket of its peers adding urgency for Beijing to reform its foreign-exchange market and ease capital controls,
Read more about 1947, 1970s, 2008: Inflation experts look back into history for lessons on Business Standard. Central bankers know how to raise benchmark interest rates, but they have less experience in calibrating the exit from quantitative easing.