What is the relationship between foreign exchange reserves and RMB depreciation?

Over the long term, the exchange rate of the Chinese yuan andforeign exchangeReserves have always maintained a reverse fluctuation relationship, but there seems to be a change this year. Why is this?

1There has been no explosive increase in residents' demand for foreign exchange purchases.

In the current round of RMB depreciation, the bank's foreign exchange settlement and sales business for clients has maintained a surplus for four consecutive months, indicating that residents and enterprises believe that there is no pressure for the RMB exchange rate to continue depreciating, and they have gradually adapted to the new normal of wide fluctuations in the RMB exchange rate against the US dollar.

2There has been no capital outflow from domestic and foreign residents and enterprises.

In theory, domestic residents or enterprises purchasing foreign exchange from domestic banks may only convert RMB deposits into USD deposits, which is equivalent to a change in the currency structure of bank liabilities and does not necessarily mean an outflow of USD capital. It is worth noting that from the attitude of foreign institutions towards RMB assets, in this round of RMB depreciation, foreign institutions are still increasing their holdings of RMB bonds on a large scale. On the contrary2015-2016During the year, overseas institutions remained cautious about increasing their holdings of RMB bonds, and even experienced consecutive months of reductions. These trends indicate that there has been no large-scale capital outflow or reduction of RMB assets by domestic and foreign residents and enterprises.

It is precisely because of these two reasons that the relationship between the RMB exchange rate and foreign exchange reserves has deviated from the past.