On the Increased FX Reserves and the Decreased Funds Outstanding for FX in China from 2014 to 2017

Objectives: This study focuses on the off-normal occurrence between the increased FX reserves and the decreased Funds Outstanding for FX in China after 8.11 exchange rate reforms, and discusses the inducement induced between the decrease of ESS of Commercial Banks and the increased FX reserves. Methods/Statistical Analysis: This study uses the data of HIBOR and SHIBOR, the data of Spot and NDF from 2014-2017 as independent variables, approach the correlation between ESS and the four factors above by Grainger Causality Test, and then by the VAR Modal for re-test. Discusses the reason based on the reality. Findings: This study finding is that the expectations for RMB exchange rate leads to the currency hedging, which is also the reason for the ESS deficit. But this result can’t give an answer to the increased FX reserves for that time. Application/Improvements: This study explores the incentives why the banking settlement and sale transferred from surplus to deficit based on the data of banking settlement and sale, the interest rate data of SHIBOR and HIBOR, the exchange rate data of Spot onshore and NDF offshore from 2014 to 2017, and demonstrate such a statement that "the FX assets are shifted from central bank holdings to business and individuals holdings". *Author for correspondence