econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 10 September 2015

Record Fall in China's Foreign Exchange Reserves

Written by , GEI Associate

According to the People's Bank of China (PBOC), its foreign currency reserves shrunk by $93.9 billion to $3.56 trillion in August, the largest single monthly drop in absolute terms, and the biggest fall on a percentage basis since May 2012.

However, many analysts believe the actual foreign-exchange sales are likely to have been larger than the $94bn fall in the value of reserves.

Because of a global stock-market panic and concerns that the Federal Reserve might wait longer to raise interest rates, the euro and Japanese yen strengthened against the dollar in August. Both the yen and the euro gained 2.2% against the dollar. Assume that China has the similar currency composition of foreign-exchange reserves as that of the global currency reserves, the euro and the yen would account for nearly 30%. As China's foreign currency reserves was $3.65 trillion at the end of July, the strengthening of the euro and yen would have boosted the dollar value of the reserves by $20 billion.

Moreover, the foreign-exchange reserves of $3.56 trillion already include the yield. If the annual percentage yield is 3%, the monthly yield would be about $9 billion. So the actual sales of foreign-exchange would be larger by the monthly yield earned (about $0.75 billion).

There are several reasons that lead China's foreign-exchange reserves to fall.

First, China's devaluation of its currency prompted further falls in the yuan. In order to halt a slide in the yuan and stabilize financial markets, PBOC had to use its dollar holdings to buy the yuan. According to Deutsche Bank, the central bank spent up to $50 billion on interventions on just three days, Aug. 12, 26 and 28.

Second, many Chinese companies and foreign companies operating in China converted their yuan holdings into dollars to pay down their dollar denominated debt. There are also more companies and individuals making foreign acquisitions and letting foreign profits accumulate overseas, as China's economic growth slows down.

Third, expectation of further yuan devaluation also played an important role. This expectation stimulated demands for dollar financial products and increased the foreign-exchange deposits of businesses and citizens. According to the central bank, dollar deposits held by Chinese citizens and businesses increased by more than $70 billion in the first half of this year. If the expectation of devaluation continues, it would greatly reduce the foreign-exchange reserves in the short term, which in turn put greater downward pressure on the yuan. The net effect is like a self-reinforcing spiral.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Surprising Pevalence of Surprises in Export Specialisation
The Destruction of the Existing Workforce
News Blog
Badass Grandpa Tokyo Drift!
Hurricane Matthew Clocks Top Wind Speed For 2016 At 101 MPH
Consumer Debt Growth May Have Stalled In Q3
Measuring Americans' Expectations Following The 2016 Election
Infographic Of The Day: Seven Negotiation Techniques
Early Headlines: Asia Stocks Mixed, Europe Lower, Oil And Dollar Down, US Oil Production Climbs, EM Bonds Pain Coming, No Trump Tax Returns, Syria Peace Talks Without US And More
Most Read Articles Last Week Ending 21 January
Why Hospitals Have Got It Wrong When It Comes To Antibiotic Resistance
The Rise Of Music Streaming Continues
60% Of Primate Species Now Threatened With Extinction, Says Major New Study
Most Attendees At Davos 2017 Come From The U.S.
What We Read Today 22 January 2017
Redneck Inventions
Investing Blog
Market And Sector Analysis 22 January 2017
Stock Market Bubble Now Second Largest Of Past 100 Years
Opinion Blog
Trumping World Trade
Retailing In America: Bricks And Torture
Precious Metals Blog
A Slow Start For The Week Would Be Constructive For Gold
Live Markets
23Jan2017 Market Close: Wall Street Down, But Pares Morning Losses By The Closing Bell, Crude Rises Back To Normalcy And The US Dollar Nears Slipping Below 100
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved