On a frigid winter afternoon, an old dumpling of a man with buzz-cut hair was holed up in his usual spot, the corner of a busy bank lobby here. He reached into his beige fisherman’s vest, pulled out a wad of bills and turned to the people hovering over him waiting to trade currency.
There was the young woman with 40,000 Japanese yen to exchange. Another had a stack of euros. Then an elderly couple, each clutching a handbag, sidled up to the man and asked if he would change their U.S. dollars into Chinese yuan.
“No, I don’t want dollars,” he snapped, shooing them away with a wave of his pudgy hands.
Nobody here wants the lowly American dollar anymore. Not businessmen, not bankers, not even the “yellow bulls” like this man, who has been a black-market trader for years and whose presence in the lobby of a large state-owned bank is tolerated, oddly, by its managers.
As the government has allowed the value of the Chinese yuan to rise faster against the greenback in recent months than it had before, there’s been a mad dash by many more people to sell their holdings. Money-changers are so flooded with dollars that they refuse to take any more. It’s too risky, they say, because the American currency’s value is slipping every day.
In 2007, the yuan appreciated almost 7% against the dollar, and most observers expect the pace to quicken this year. Since Jan. 1, it’s risen a further 2%.
The dollar might have fallen even faster had the Chinese government let the yuan float freely instead of controlling the daily exchange rate within a narrow 0.5% band. A dollar currently trades for about 7.16 yuan, down from a high of 8.28 in the last decade.
In recent years, the dollar’s slide has been much sharper against other major currencies, including the euro and the British pound, reflecting what many experts believe is the result of the U.S.’ borrowing binge over many years. That has left the nation deep in hock to foreigners, of which China is among the biggest creditors.
“It’s meaningless to buy U.S. dollars,” said another Chinese black-market trader whose turf is in front of the Citibank branch in Shanghai’s riverfront area known as the Bund. The currency has lost its luster, he said.
“Even the government doesn’t want it.”
It’s true: China’s central government doesn’t want too many dollars for the same reason -- they are a shrinking asset. Thanks to its huge trade surplus, Beijing is sitting on the world’s largest stockpile of foreign reserves -- about $1.5 trillion, much of it in U.S. dollars.
One way that the government is dealing with the dwindling dollar is by spending some of it in the U.S. through its sovereign wealth fund and other state-owned enterprises. With $200 billion in assets, China’s government investment fund bought a $5-billion stake in the Wall Street firm Morgan Stanley in December.
“No one would like assets that are depreciating. And government cannot ban people from selling dollars,” said Lu Sui, an associate professor at Peking University’s School of Economics. “That’s why experts and officials are figuring out ways like encouraging people to invest overseas, acquiring companies and resources overseas, and approving [so-called] QDII investments,” which give Chinese investors a way to put their money into overseas financial vehicles, thus encouraging them to keep their U.S. dollars.
Even as it is acting to encourage citizens to buy things with dollars, or keep them, China’s government is allowing faster appreciation of the yuan, also called the renminbi. This may seem counterintuitive, but by raising the yuan’s value, and thus making Chinese goods sold abroad more expensive, Beijing hopes to slow exports a bit. That could reduce its massive trade surplus and inflows of dollars -- and the accompanying political pressure from trading partners and domestic inflation that has surged to worrisome levels.
Li Yiwen, 48, was in a hurry one day recently to exchange $10,000 that her relatives in the U.S. were wiring to her. Waiting at a Bank of China branch in central Shanghai, she was anxious to see if the money had arrived.
“Today is my second time coming here,” said the laid-off electronics factory worker on a Thursday afternoon. Li said she didn’t want to wait even a day before exchanging the currency.
Just a few years ago, Li, like many Chinese, treated dollars like the most precious of commodities.
“I thought I should exchange to get dollars whenever I had the chance,” she said. “The dollar seemed to be very valuable and hard to get. . . . People even admired us because we could easily exchange for U.S. dollars.”
As back then, many ordinary Chinese today would rather trade dollars on the black market than at banks, where lines are always long. Yellow bulls can often beat a state bank’s official exchange rate by a hair. What’s more, China’s government last year set a $50,000 limit on how much one person could exchange annually at banks.
“Many feel that $50,000 is not enough, and so they use their close relative’s ID to exchange more dollars,” said Lu Yongzhen, an officer responsible for foreign exchange at a Bank of China branch in Shanghai’s old French concession district.
These days, she said, twice as many people are coming into her branch to sell their dollars as did last year.
The heavy inflow of dollars is a strain on bank branches, too, as they have to exchange or sell them promptly to prevent excess supplies.
Many Chinese businesses face a similar bind.
He Bin, manager of Zhejiang Hexin Toy Co., an export company based in Zhejiang province, collects about $1 million in U.S. dollars every month from his overseas customers. As recently as 2006 -- when the yuan appreciated just 3.25% over the entire year against the dollar -- he didn’t worry about quickly converting that money to yuan. His finance department usually went to the foreign currency section once a month. He figured any extra dollars in hand could be used to buy imported materials.
“But nowadays, if we get the money in the morning, we go to the bank and convert it in the afternoon,” he said, adding that he faced an even bigger headache when it came to negotiating orders.
“Just a couple days ago, one Japanese client ordered 280,000 wooden toys from us, over $500,000 in U.S. dollars or about 4 million renminbi. . . . But the products aren’t due until June and July this year. And they want us to sign the contract in U.S. dollars,” he said. “It’s very likely that we won’t be able to make any money.”
“I wish I could only be paid in renminbi and get rid of my U.S. dollars as soon as possible.”
Cao Jun in The Times’ Shanghai Bureau contributed to this report.