China’s war chest of forex reserves drops to lowest since 2013

The currency hoard dropped by $87.2 billion to $3.44 trillion at the end of November, from $3.53 trillion a month earlier, according to People’s Bank of China data released Monday, extending this year’s decline to $405 billion.

It was also below the median forecast of US$3.49 trillion in a Bloomberg poll of economists.

It was the lowest figure since February 2013’s US$3.40 trillion and took the total reduction this year to US$404.7 billion.

Analysts blamed the fall partly the dollar’s rally during November, which reduced the value of non-dollar reserves, and partly on China’s central bank selling dollars to support the yuan.

Beijing keeps a grip on currency flows and the yuan can only move up or down against the USA dollar by 2 per cent from a mid-rate that the People’s Bank of China sets daily.

The International Monetary Fund admitted the yuan into its elite club of currencies this month, following hard lobbying by Beijing which sees inclusion as recognition of China’s status as a global economic power.

“The pick-up in capital outflows appears to have been predominately driven by increased expectations for renminbi (yuan) depreciation”, Julian Evans-Pritchard at Capital Economics said in a note.

Analysts and traders have kept a close eye on the reserves since August, when China’s central bank made a decision to devalue the yuan by over 2 percent.

The long-term goal is for very few interventions, PBOC Deputy Governor Yi Gang said at a briefing last week, adding that larger two-way currency fluctuations are normal.

Gold reserves decreased from $63.3 billion at the end of October to $59.5 billion at the end of November.

Ding said there’ll need to be four to five cuts to banks’ reserve-requirement ratios in 2016 to maintain adequate liquidity.