Yuan Strengthens Past 6.7, Erasing Dollar Deposit Gains

The onshore and offshore renminbi (RMB) both briefly breached the 6.70 mark against the U.S. dollar recently, hitting their highest levels since January 2023 and leaving many investors who had purchased dollar-denominated deposits facing losses.

"Two Years of Dollar Deposits, Nothing to Show for It"

Ms. Qiao, a Beijing resident, recalled that two years ago she converted RMB into USD at exchange rates ranging from 7.13 to 7.27, purchasing a total of $9,100. Although her dollar deposits offered an interest rate of 5.1% in the first year and 3.1% in the second, the exchange rate movement has nearly wiped out all of her interest income.

Industry insiders warn that if the RMB continues to appreciate, even with relatively high dollar deposit rates, the exchange losses when converting back to RMB could offset or even exceed the interest income.

Dollar Deposits: A Year of Losses Exceeding RMB 10,000

Currently, interest rates on three-year and five-year RMB deposits at Chinese banks have fallen below 2%. In contrast, dollar-denominated deposits offer annual rates above 3%, with some banks offering promotional rates of 4% for new funds. This rate differential has attracted a number of retail investors.

Qian Wei (a pseudonym), who works at a major tech company in Beijing, is one such investor. He told China-Singapore Jingwei that in late 2024, he planned to travel to Egypt with his family the following year and needed foreign currency. At that time, East Asia Bank's dollar time deposit rates were above 4%, significantly higher than domestic RMB deposit rates, prompting him to allocate funds to foreign currency.

Starting in late 2024, Qian Wei purchased dollars in batches, with an average cost of around 7.25, and some dollars were even bought at the high of 7.3.

According to the China Foreign Exchange Trade System, the RMB central parity rate against the USD was 7.1057 on September 23, 2025, and 6.7468 on September 23, 2026 — an appreciation of approximately 5% over the year. Based on Qian Wei's average purchase cost of 7.25, the dollar he holds has depreciated by about 7% over the past year.

Over the past year or so, Qian Wei has converted a total of $60,000, placing deposits at East Asia Bank and Hangzhou Bank's international banking division.

Regarding the temporary paper loss, Qian Wei said it is manageable. He diversifies his assets, with foreign currency holdings only accounting for a portion of his portfolio, so fluctuations in a single asset class do not destabilize his overall asset base. He plans to roll over his dollar deposits upon maturity to continue earning interest, which he believes will ultimately prevent losses.

On social media, many netizens have posted about their gains and losses from dollar deposits. One user reported converting RMB 100,000 into dollars a year ago and losing RMB 6,000. Another said they bought dollars at around 7.2 and have been making time deposits with an interest rate of about 3.4%, noting that the exchange rate difference has largely offset the interest income upon settlement.

RMB Exchange Rate Expected to Maintain a Stable-to-Strong Trend

The RMB's strengthening against the USD over the past year has been driven by multiple factors.

Lou Feipeng, a researcher at Postal Savings Bank of China, told China-Singapore Jingwei that the current round of RMB appreciation began in April 2025, with the onshore rate rising from 7.35 to around 6.70 — a cumulative gain of over 8%, while the offshore rate has appreciated by more than 9%.

"This process has not been a straight line; rather, it has featured stepwise upward movements alternating with periodic pullbacks. The driving forces include strong exports leading to high trade surpluses, robust corporate settlement demand, a weakening U.S. dollar, and increased foreign allocation to Chinese assets," Lou said.

Wang Qing, chief macro analyst at Dongfang Jincheng, noted that the recent sustained adjustment of the RMB central parity rate toward a stronger direction may be related to continued strong export growth, rising net settlement demand, and other short-term factors. Data show that banks' net settlement of foreign exchange for clients reached $51.9 billion in August, a month-on-month increase of $26.7 billion. He estimates that the September figure will remain at a relatively high level.

Wang pointed out that during this period, global foreign exchange markets have experienced heightened volatility due to monetary policy adjustments in major overseas economies, joint intervention in the foreign exchange market by the U.S. and Japan, and developments in the Middle East. The RMB has maintained a generally stable-to-strong trend, largely supported by China's stable external trade environment, sustained strong exports, and steady macroeconomic progress.

Looking ahead, Wang expects the RMB to continue its stable-to-strong trajectory in the short term. He said attention should be paid to changes in China's export growth rate and the impact of monetary policy adjustments in major overseas economies on the U.S. dollar index. He forecasts that the RMB will generally move in the opposite direction to the U.S. dollar with relatively narrow fluctuations, with the core trading range for the RMB exchange rate expected to be between 6.7 and 6.9 by year-end. The overall trend for the year could be "strengthening first, then stabilizing."

Lou Feipeng said the RMB is likely to continue appreciating, though at a slower pace, and will shift toward moderate, two-way fluctuations. Export resilience, current account surpluses, and outstanding settlement demand support RMB appreciation, while the deep inversion of China-U.S. interest rate differentials, financial account deficits, and limited room for further dollar weakness are unfavorable factors.

Lou reminded investors that dollar deposit returns are denominated in USD. If the RMB continues to appreciate, exchange losses upon conversion back to RMB could offset or even exceed interest income.

Li Gang, research director at the China Foreign Exchange Investment Research Institute, previously advised in an interview with China-Singapore Jingwei: First, do not base currency allocation decisions solely on interest rate differentials; exchange rate fluctuations must be factored into overall return assessments. Second, foreign currency assets are more suitable as part of a diversified portfolio for risk dispersion rather than for short-term yield chasing. Third, without clear foreign currency liabilities or expenditure needs, blindly concentrating holdings in a single foreign currency can expose investors to unnecessary exchange rate risk.

(Source: China-Singapore Jingwei)