Watchdog: China Forex Market Is Stable, Resilient

Friday, April 23. It included statistics revealing the current status of Chinese financial institutions and the country’s foreign exchange market.

We find this news essential to share with our foreign exchange or forex traders. China is a huge and influential nation, and any development in its forex markets can considerably impact the world.

The SAFE disclosed that Chinese banks witnessed a forex settlement surplus in March. Moreover, the forex sales amount was US$202 billion, while the forex settlement by banks’ amount was US$221.7 billion, based on the forex watchdog’s data.

These figures resulted in an excess worth US$19.7 billion, according to the report posted online by financial and financial technology news source the Middle East North Africa Financial Network. Additionally, the Chinese financial firms saw forex settlement excess amounting to US$88.5 billion in the first quarter of 2021, as the statistics revealed.

With these figures, the SAFE pointed out that China has the conditions essential in keeping the balance of foreign payments and the international market. The Chinese bureau replied to market concerns that the US Federal Reserve System would terminate its loose monetary policy early.

These issues came against the backdrop of an American economy picking up from increasing inflation expectations and the COVID-19 pandemic blow. In March 2020, the US central bank re-introduced an ultra-loose monetary policy. The asset scale has, so far, surged by US$3.6 trillion.

This figure is the same as the expansion scale during the 2008 financial crisis. Wang Chunying relayed during a press conference last Friday that this round’s time frame is shorter than the quantitative ease’s last round, yet with a bigger scale.

The SAFE representative cited that she feels positive about China’s forex market being stable and resilient in the face of a possible early reversal of the Fed’s monetary policy. Plus, Wang shared that there is a critical time that the yuan exchange rate becomes more flexible. In the domestic market, the one-year historic volatility of the yuan exchange rate versus the US dollar reached 4.3 percent.

Meanwhile, in the foreign market, it was 5.1 percent, and both are up 0.6 percentage points from the start of 2021 at a relatively high level in history. Wang remarked that this situation could effectively aid in releasing market pressure and precluding unilateral anticipations.

The SAFE spokesperson disclosed that the Chinese economy’s fundamentals have remained sound. She added that the financial market has steadily opened up, and the forex market’s maturity has carried on with its improvement. Wang said that these factors are actually the very solid foundation for China to adapt and respond to external challenges or shocks.

We are happy to hear about China’s forex market being in a healthy state. We gathered that the country had not accumulated excessively high international debt, and its market risk mitigation capacity is constantly getting better, per the SAFE’s data.

With its banks witnessing a forex settlement surplus, we believe that the Chinese economy is a robust one and can ward off any problems that may come its way. We also think that, despite the ongoing COVID-19 pandemic, China can still bounce back considering that its economy today is a strong one and is leading the world.

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