UPDATE 1-Foreign currency deposits in China swell to $ 1.01 trillion in May

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SHANGHAI, June 10 (Reuters) – China’s foreign currency deposits hit a record high of $ 1.01 trillion in late May, from $ 1 trillion a month earlier, the central bank said Thursday.

Foreign currency deposits have grown steadily since last year, boosted by China’s huge trade surplus and continued inflows of capital into Chinese stocks and bonds. Foreign holdings of Chinese bonds hit a record high last month.

The People’s Bank of China (PBOC) said overseas cash deposits increased 35.7 percent year-on-year and $ 9.4 billion from the previous month.

A mountain of dollars on deposit in China has become so large that banks are struggling to lend change. Traders say this poses a risk to official efforts to control a surging yuan.

The yuan has gained about 12% against the dollar since May 2020, hitting its highest levels in more than three years.

The rapid appreciation prompted policymakers to recently announce a series of measures to curb the recovery.

Many policymakers have warned market participants against betting on unilateral currency moves, and the PBOC has increased the ratio of required reserves to foreign currency deposits for the first time in 14 years, with the aim of tighten foreign currency liquidity.

Earlier on Thursday, the currency regulator said two-way volatility in the yuan’s exchange rate would become normal and called on companies to hedge their currency risks.

(Reporting by Winni Zhou and Andrew Galbraith Editing by Peter Graff and Kim Coghill)

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