Wednesday, February 8, 2017

China’s forex reserves fall below S$4.3 trillion, prompts yuan devaluation fears

FEBRUARY 7, 2017

BEIJING — China’s foreign exchange reserves have unexpectedly fallen below US$3 trillion (S$4.3 trillion), the first time they have dipped below the closely watched level in nearly six years, even while authorities tried to curb outflows by tightening capital controls.

Reserves fell by US$12.3 billion last month to US$2.998 trillion, compared with a drop of US$41 billion in December, official data showed on Tuesday (Feb 7). While the US$3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling in global financial markets over the speed at which the country is depleting its ammunition to defend the yuan and staunch capital outflows.

China’s foreign exchange regulator put on a brave face following the latest figures. “China’s capital outflow has moderated a lot and it will move towards a balance in the future. The current reserves are adequate,” said the State Administration of Foreign Exchange in a statement.

Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the currency. The yuan fell 6.6 per cent against the surging US dollar last year, its biggest annual drop since 1994.

For 2016 as a whole, China burned through nearly US$320 billion of reserves, on top of a record drop of US$513 billion in 2015, as Beijing sought to defend the yuan.

[So China has "burn" through $0.8trillion since 2015, and if the trend continues, it would break the $1 trillion mark this year. Or come close to it.]

The yuan has found some respite in recent weeks as the US dollar retreated, helped also by recent steps to curb capital outflows. However, analysts expect downward pressure on the yuan to resume, especially if the US Federal Reserve continues to raise interest rates, which would likely trigger fresh capital outflows from emerging economies such as China. On Tuesday, the yuan slipped 0.3 per cent to 6.8844 per US dollar.

Meanwhile, China’s gold reserves rose to US$71.292 billion at the end of January from US$67.878 billion at end-December, data from the People’s Bank of China website showed.


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