As the yuan continues to strengthen, losses are mounting for Chinese individual investors who had invested in dollar-denominated assets in pursuit of high interest rates. For some investors, the losses from exchange rate declines have exceeded the interest income earned from dollar deposits and financial products, resulting in situations where even the principal is at risk.

According to a report by Economic Observer on April 27, a woman surnamed Bai, who works in Shenzhen, exchanged yuan for about 80,000 dollars between 2024 and the first quarter of 2025 to prepare funds for her child's overseas education. She purchased dollars in installments when the exchange rate was around 7.3 yuan per dollar and diversified her investments into dollar-denominated time deposits and financial products.

However, the situation reversed recently as the yuan strengthened. Reports indicate that Bai's dollar assets have now recorded unrealized losses of about 40,000 yuan.

An employee is organizing US dollar bills at the Counterfeit Currency Response Center of Hana Bank in Jung-gu, Seoul. Photo by Kang Jinhyung

원본보기 아이콘

This trend coincided with a "high-interest dollar product" boom that spread across China in mid-2024. At the time, the interest rate on yuan deposits continued to decline, but some banks were offering annual interest rates above 5% on dollar-denominated time deposits, presenting attractive returns.

In addition, growing expectations that the US Federal Reserve would soon cut interest rates fueled the belief that the high interest rate window would not last long, further boosting investment sentiment. This led to a rapid influx of demand into dollar assets, as investors sought to lock in relatively high interest rates.

Bai also followed this trend, exchanging 50,000 dollars for a time deposit with an annual interest rate in the 5% range when the exchange rate was around 7.3 yuan per dollar, and later purchased additional dollars to expand her investments. She also allocated some funds to dollar-denominated financial products in hopes of earning interest income.

US dollar bills and Chinese yuan. Getty Images

원본보기 아이콘

The problem began in 2025 when the yuan started to appreciate. As the exchange rate dropped to around 7 yuan per dollar, investors who had purchased dollars at higher exchange rates could not avoid losses from currency movements.

Although dollar-denominated financial products still offered returns in the 3% range and time deposit rates remained around 4%, losses from the falling exchange rate far outweighed the interest gains. As a result, some investors are now facing principal losses instead of the stable returns they had anticipated.

Experts point out that focusing solely on interest rates in foreign currency investments can easily lead to overlooking exchange rate risk. They note that if the exchange rate moves in the opposite direction over a short period, the investment return structure can deteriorate rapidly.

Getty Images

원본보기 아이콘

Recently, the interest rate appeal of dollar-denominated assets has been weakening rapidly. Major Chinese commercial banks have generally lowered their dollar deposit rates, and most large banks now offer rates below 3%. Some banks' short-term deposit rates have dropped to the low to mid-2% range. As both narrowing interest rate differentials and exchange rate volatility appear in the market, analysts say a reassessment of foreign currency asset investment strategies is inevitable.

Experts advise that investment approaches should be tailored according to the investment purpose and the time frame for capital management. For funds that are not intended for long-term use, holding them for a certain period can help offset exchange rate fluctuations with interest income. However, in the case of short-term funds, it is important to carefully consider the timing of currency exchanges and the profit and loss structure when adjusting asset allocations.