Capital Flows to US Dollar for Safe Haven, April RMB Deposits Hit Over 12.5-Year Low

(CNA, Taipei, May 18, by reporter Pan Tzu-yu) Taiwan's central bank announced today that as of the end of April, the Renminbi (RMB) deposit balance in domestic banks was 106.788 billion RMB, a monthly decrease of 36.09 billion RMB. This marks a new low in over 12.5 years, with the rate of decline widening. A central bank official analyzed that as the conflict in the Middle East continues, heightened risk-off sentiment has led capital to flow into the US dollar, causing RMB deposits to cool down. According to the central bank's statistics on RMB business in domestic banks, as of the end of April, the RMB deposit balance at Domestic Banking Units (DBUs) was 81.821 billion RMB, a monthly decrease of 1.484 billion RMB. The Offshore Banking Unit (OBU) balance also decreased by 2.125 billion RMB to 24.967 billion RMB, with both declining. The total RMB deposit balance in domestic banks was 106.788 billion RMB, a new low since October 2013. The central bank official pointed out that compared to previous months, the decline in RMB deposits in April was "somewhat larger," and that in both DBUs and OBUs, the decrease was due to corporations converting RMB deposits into US dollars. This is presumably because the ongoing US-Iran conflict has increased financial market uncertainty, and "the safe-haven function of the US dollar is still greater than that of the RMB." The official noted that while there is significant trade and economic interaction between Taiwan and China, creating a certain demand for capital, overall, the US dollar still accounts for a higher proportion of external payments. Coupled with the Middle East conflict, heightened risk aversion has led to a capital flight to the US dollar. On the other hand, the escalating conflict in the Middle East has caused a surge in international energy prices, sparking market concerns about a resurgence of inflation. The central bank official stated that investors' views on the US Federal Reserve's monetary policy path have begun to shift, from previously expecting a high probability of a rate cut to now anticipating a delay, with some even holding more hawkish views. From an interest rate perspective alone, the US dollar is also more attractive than the RMB. With the April RMB deposit balance hitting a 12.5-year low and no signs of the Middle East conflict abating as of mid-May, the media asked if this means the trend of capital shifting to the US dollar will continue in May. The central bank official believes that traditionally, in May, June, and July, trade payment needs would push RMB deposits up. However, with factors like war and risk aversion now in play, it is difficult to determine whether the upward or downward momentum is stronger. The trend of RMB deposit balances remains to be seen. (Editor: Pan I-ching) 1150518