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Weak Yuan Drives Demand for Dollars

On weak yuan, Chinese are turning to dollars.

The move is fueled by an eight year low for the yuan and rising interest rates in the United States. The yuan has fallen more than 6 percent against the dollar this year. And economists predict it will fall another 3 to 5 percent in 2017.

The depreciation of the yuan has made dollars, be it U.S., Australian or Hong Kong, more attractive. Bloomberg reports U.S. dollar investment products are selling out within a minute of being offer.

Foreign currency bank deposits owned by Chinese households rose by almost 32 percent in the first 11 months of 2016, which is four times the growth rate for deposits for yuan and other currencies.

A net $69.2 billion exited the nation in November, compared with a monthly pace of around $50 billion since June, Goldman Sachs economists said.

To manage the outflux, the Chinese government has set a limit of  about $50,000 a year on the amount of money its residents can exchange for foreign currency. Banks are doing their part too, according to a Reuters report. Some are offering creative incentives for anyone willing to swap dollars for yuan.

China’s economy is set to grow around 6.5% in 2017, according to the China Academy of Social Sciences. Compared to the 6.7% growth in the first three quarters of 2016, which marked the slowest pace in 25 years.