This month, branches of foreign banks in China have raised the interest rates of dollar deposits to triple those offered by Chinese banks. This policy has attracted more deposits from residents who have US dollars, but the reason behind the rate increase is worth thinking about, says an article in Beijing News. Excerpts:

The US dollar decreased in value against the yuan over the past few months. For instance, $10,000 was worth 61,630 yuan at the beginning of the year, but on Tuesday the same amount of US dollars could only be exchanged for 61,280 yuan, a decrease of 0.57 percent in three months. As such, the interest rate should also decline.

However, there may be two reasons for foreign banks to carry out this approach. First, these banks are trying to attract more rich people to become their clients. This new policy, combined with higher interest rates, usually requires certain deposit amounts and is aimed at the rich.

Second, as the deposit rate of foreign currencies in China is not restricted, unlike the yuan, different banks can apply various operation strategies. For foreign banks, they need to attract more deposits to boost their business.

Moreover, although the current interest rate of dollar deposits triple the Chinese banks' interest rate, it is actually only a little higher than the US Federal Reserve's current bench rate. Therefore, we should not worry about the foreign banks' losses from adopting such a strategy, as they obviously provide more options for clients and add more competition to the market.