China FX reserves fall $3.5trn in September

The PBOC devalued the yuan and switched to a more market- oriented reference rate in August, prompting a 2.6 per cent decline in the currency that month and a record $141.66 billion of estimated capital outflows.

It aimed to stabilize the yuan and calm sentiment after an unexpected devaluation of its currency jolted global markets.

The country’s gold reserves fell from $61.795 billion at the end of August to $61.189 billion at the end of September.

The figure, smaller than the $94 billion reduction reported in August, took the three month decline in the nation’s FX reserves to $180 billion according to analysis conducted by Westpac.

China’s foreign-exchange reserves fell by a record last quarter as the central bank sold dollars to support the yuan after a surprise devaluation spurred bearish bets on the currency.

Goldman Sachs prefers to looks at bank settlement data by the State Administration of Foreign Exchange, which includes derivative transactions but is not limited to official foreign exchange reserves.

“As PBoC also intervened into the forward market in the past month, the foreign reserves will likely plunge again when these forward contracts mature”, he said. Beijing is also pressing on with attempts to ease concerns about a cooling economy, which is growing at its slowest pace in decades. Forex reserves shrank by 43.3 billion United States dollars to 3.514 trillion USA dollars.

Analysts say the drop in September is less than market expectations, but downward pressure will remain in the short term.

“China has been trying to converge the rates in both the onshore and offshore markets”, said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group in Singapore. The bank had previously released the data on a quarterly basis.