China’s foreign currency holdings remained above US$3 trillion last month, even as the yuan capped its steepest annual decline in more than two decades.
Reserves fell US$41.08 billion to US$3.01 trillion, the People’s Bank of China (PBOC) said in a statement yesterday. That matched a US$3.01 trillion estimate in a Bloomberg survey of economists.
China may take measures to keep its foreign-currency stockpile from slipping too far below the key US$3 trillion mark to avoid hurting investor confidence and spurring further declines in the yuan, economists at major banks said. Policymakers have recently rolled out extra requirements for citizens converting yuan into other currencies after the annual US$50,000 quota for individuals reset on Jan. 1.
The decline of foreign exchange reserves last month was mainly because the central bank supplied funds to maintain balance in the foreign exchange market and the depreciation of non-US dollar currencies, the State Administration of Foreign Exchange (SAFE) said in a separate statement yesterday.
For the full year, the SAFE said the central bank’s effort to stabilize the yuan was the key reason for the drop in reserves.
“The combination of policy-
induced yuan stabilization and higher reporting requirements for households buying FX will buy the PBOC a little breathing room, preventing escalating outflows in the first month of the year,” Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, said.
The yuan fell 0.9 percent against the US dollar last month, capping a 6.5 percent drop over the year.
Policymakers may prefer using capital controls instead of burning through foreign exchange reserves to defend the yuan, said Gao Yuwei (高玉偉), a researcher at the Bank of China Ltd’s (中國銀行) Institute of International Finance in Beijing.
China’s gold reserves stood at US$67.9 billion at the end of last month, compared with US$69.8 billion a month earlier. The nation kept gold reserves unchanged at 59.24 million troy ounces for a second month last month, the first time it halted purchases for two consecutive months since disclosing holdings as of June 2015.
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