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Lower yuan vexes those with plans for overseas trips
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THE effects of the yuan’s devaluation go beyond the economy at large. They also affect individuals, or at least public thinking.
As the value of the yuan slid from about 6.08 to the US dollar in October 2013 to about 6.58 now, consumers have found ways to mitigate some of the risk facing them.
Jimmy Chen, an office worker planning a holiday in the United States ahead of the Chinese New Year, decided to take more dollars in cash with him than he might otherwise carry.
“I usually use a credit card to cover my expenses because I am afraid of carrying too much cash,” he said. “But this time, I decided to take US$2,000 in cash to that I don’t get caught having to pay off my credit card later with an even weaker yuan.”
It seems that many other people share that precaution.
“I went to a bank yesterday to get the US dollars, and the bank said it had only several hundred dollars left in cash,” Chen said. “They told me either to make a reservation and come back later, or try my luck at a larger bank nearby.”
So far in the new year, the yuan lost about 1.5 percent against the US dollar after depreciating 5 percent last year.
In the first week the yuan fell from 6.49 to as low as 6.59 per dollar in Shanghai, and touched 6.74 in the yuan market in Hong Kong.
By the end of last year, China’s central bank had signaled its willingness to be more flexible in setting the parameters of the yuan, allowing the currency to move more freely against the currencies of major trading partners like the US, UK, Korea, Japan, and Southeast Asian countries.
Domestic and foreign investment institutions are predicting the yuan will drop between 5 percent and 15 percent against the US dollar this year, with average predictions falling somewhere in the range of 6.70 to 6.90 by the end of 2016.
Chinese with plans to visit or study in the US are eagerly trying to get their hands on greenbacks before they become more costly to obtain.
“We have more customers wanting to exchange yuan for US dollar these days,” said a lobby manager at an outlet of the Bank of China. “That’s not a problem if the amounts are small.”
Waiting period
In that bank, a customer can buy US$5,000 without making a reservation, but for larger amounts, there is a waiting period.
That is in line with a new central bank policy implemented to ensure “normal” foreign currency supplies for individuals while stepping up monitoring of larger transactions.
Beginning this year, a system was launched nationwide to record foreign-exchange transactions of individuals, both online and in bank branches.
A watch list is being set up to spot people suspected of using their annual foreign-exchange quota of US$50,000 or equivalent to lend out to other people.
The authorities believe the quota adequately covers tourists and overseas students but say it could be co-opted for money laundering activities or illegal overseas investments.
In a trial project begun last September, after the central bank engineered a 3 percent depreciation of the yuan, people were put on a watch list if more than five of them bought more than US$200,000 in one day or on consecutive days, and transferred the money to a single account overseas.
An individual is also not allowed to transfer more than US$50,000 overseas within one day, without proof of payment.
In addition, UnionPay this year slapped a new 100,000 yuan annual limit on account card withdrawals overseas, in line with a directive from the People’s Bank of China.
Monetary authorities also have been talking since last year about regulations on mainland residents investing in in overseas capital markets and real estate, but with no clear new rules on such cross-border money transactions, it remains a gray area.
For ordinary families not planning to visit or study overseas, experts have advised against hoarding US dollars or engaging too heavily in foreign-exchange wealth management products.
Banks are now offering US dollar wealth-management products with around 1.2 percent annual return. Taking into consideration a 5 percent depreciation of the yuan, the real rate of return is somewhat higher than 6 percent.
Such returns are not difficult to achieve with wealth-management products denominated in yuan.
“China’s economy has slowed, but the situation, including the trade surplus, does not support significant depreciation of the yuan,” said Zhao Qingming, chief researcher at the China Financial Futures Exchange. “Domestically, you don’t have many investment options in foreign currencies. More importantly, returns from yuan-denominated assets will exceed possible yuan depreciation.”
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