Chinese Banks Increase Dollar Deposit Rates and Buy U.S. Treasuries

Chinese banks are purchasing U.S. Treasuries after raising dollar deposit rates. Most large state-owned banks in China had fixed their dollar deposit rates at 2.8% since 2023, and accounts exceeding $50,000 could negotiate rates above 3% since June. Some smaller banks and foreign banks have offered rates around 4% since August. Compared to the low rates of Chinese government bonds, U.S. Treasuries are emerging as an attractive investment option. According to the State Administration of Foreign Exchange, China's foreign exchange reserves reached $3.4188 trillion at the end of July, an increase of $2.5 billion from the previous month. As of the end of June, China's holdings of U.S. Treasuries stood at $633.4 billion, a 13% decrease compared to the same period last year. However, it remains uncertain whether the recent purchases by banks have changed the overall trend of declining holdings. Policy directions are volatile, and measures to lower or raise dollar deposit rates affect currency exchange demand and banks' dollar liquidity. In the crypto market, dollar liquidity and demand for U.S. Treasuries act as indirect variables.

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