New Delhi: Chinese lenders have taken short bets against the US dollar which add up to over $100 billion. The shorts have been built over the past 1 year in a mechanism known as the foreign exchange currency swap. China has purchased extended Yuan loans at fixed exchange rates against the US dollar. The country’s banks have also borrowed the US dollar at fixed rates.
In the event of a decline in the dollar’s value, the lenders will receive more greenbacks for each Yuan loan extended. This will in turn be used to repay te dollar loan taken by them, or cover their position. The margin of difference between the dollars received and the dollar returned will be the earnings on these banks’ bets, the Firstpost reported, citing a Bloomberg News report.
Why Chinese Yuan is slipping
Ironically, China is betting on the greenback’s decline to arrest the weakening of its own currency. In july, the Chinese Yuan hit a 7-month low, declining 2.3 per cent so far this year, owing to a property sector inventory and insolvency crisis and amid broader slowdown concerns. Foreign investment has also dried up over the past year as investors eye more lucrative returns in other emerging economies. To be sure, the People’s Bank of China has given its go-ahead to the weakening Yuan since it understands that a higher for longer rate environment will have an inverse effect on the Yuan, Reuters reported.
China’s Wall Street Buster brokerage
China announced the merger of 2 entities to create a $1.7 trillion brokerage. Guotai Junan Securities will Haitong Securities via share swap agreement, Bloomberg News reported. The resulting brokerage will be larger than Citic Securities, according to the report. The Shanghai Assets Supervision and Management Commission owns a one-third stake in Gotai Junan and nearly 20 per cent of Haitong’s shares, Bloomberg reported.
US dollar 1 equalled 7.08 Chinese Yuan as on September 8, 2024, at 3:35 am.
Chinese banks have built a short bet of $100 billion against the US dollar. Here’s what it means Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
