Currently, the US Fed’s benchmark rate is set at a target range between 0 and 0.25 percent. Meanwhile, China’s commercial banks charge a deposit rate from 3.25 percent to 3.3 percent. Thus, speculators only need to withdraw cash in the US, exchange it into yuan, and deposit the money at Chinese commercial banks. A 3 percent return can be gained by doing this simple transaction, and it’s risk-free. If it’s Japanese yen, the earning is even more lucrative. The renminbi has appreciated 20 percent against the yen so far this year, which means, the earning margins could be as wide as 20 percent within five months.
However, if large amounts of capital flow into China, the risks of negative impacts on the economy, such as increasing inflationary pressures or a widening current account deficit - will rise. China’s central bank governor Zhou Xiaochuan has warned that loose policies in developed economies has sparked the movement of cash into China.