RMB Exchange Rate and China´s Foreign Currency Deposits and Loans: An Empirical Evidence

Since the reform of RMB exchange rate, China´s foreign exchange deposits and loans have varied. As one falls, another rises with the change of Renminbi exchange rate.With the continuous appreciation of Renminbi, China´s foreign currency deposits have reduced and foreign currency loans have increased. Commercial banks´ loan-deposit ratio has expanded, resulting in shortage of foreign currency and the emergence of foreign currency liquidity risks. With the devaluation of the RMB exchange rate, foreign exchange deposits have been increasing and foreign exchange loans have been reducing. Empirical studies also support that the RMB exchange rate correlates negatively with foreign currency loans but positively with foreign currency savings deposits. This shows that RMB exchange rate really affects China´s foreign exchange deposits and loans and the financial operation.Therefore, reforms of foreign exchange rate regime and auxiliary systems shuold be further deepened.