China Forex Re­serves Fall Be­low $3 Tril­lion for First Time in Nearly 6 Yrs

The Economic Times - - Around The World -

Bei­jing: China’s for­eign ex­change re­serves un­ex­pect­edly fell be­low the closely watched $ 3 tril­lion level in Jan­uary for the first time in nearly six years, though tighter reg­u­la­tory con­trols ap­peared to mak­ing some progress in slow­ing cap­i­tal out­flows.

China has taken a raft of steps in re­cent months to make it harder to move money out of the coun­try and to re­assert a grip on its fal­ter­ing cur­rency, even as US Pres­i­dent Don­ald Trump steps up ac­cu­sa­tions that Bei­jingiskeep­ingth­eyuan­toocheap.

Reser ves fel l $ 1 2 . 3 bi l lion i n Jan­uary to $2.998 tril­lion, more than the $10.5 bil­lion that econ­o­mists polled by Reuters had ex­pected.

While the $ 3 tril­lion mark is not seen as a firm “line in the sand” for Bei­jing, con­cerns are swirling over the speed at which the coun­try is de­plet­ing its am­mu­ni­tion, sow­ing doubts over how much longer au­thor­i­ties can af­ford to de­fend both the cur­rency and its re­serves. Some an­a­lysts fear a heavy and sus­tained drain on re­serves could prompt Bei­jing to de­value the yuan as it did in 2015, which could throw global fi­nan­cial mar­kets into tur­moil and stoke po­lit­i­cal ten­sions with the new US ad­min­is­tra­tion.

While Bei­jing quickly down­played the fall be­low the $ 3 tril­lion level, the breach could bol­ster China’s ar­gu­ment that it not de­lib­er­ately de­valu­ing its cur­rency, ahead of the US Trea­sury’s semi-an­nual re­port in April on cur­rency ma­nip­u­la­tors.

To be sure, the Jan­uary de­cline was much smaller than the $41 bil­lion re­ported in De­cem­ber, and was the small­est in seven months, in­di­cat­ing China’s re­newed crack­down on out­flows ap­pears to be work­ing, at least for now. Econ­o­mists ex­pect more force­ful polic­ing of ex­ist­ing reg­u­la­tory con­trols af­ter the lat­est slide, though China’s fi­nan­cial sys­tem is no­to­ri­ously por­ous, with spec­u­la­tors quickly able to find new chan­nels to get funds out of the coun­try.

While the world’s sec­ond-largest econ­omy still has the largest stash of forex re­serves by far, it has burned through over half a tril­lion dol­lars since Au­gust 2015, when it stunned global in­vestors by de­valu­ing the yuan.

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