Big drop in Beijing’s forex reserves
Gold stash up by 21 tons
AS CHINA takes the reins of the Group of 20 (G20) for the coming year, the first indications are emerging of its agenda.
Among the priorities: making the global system more resilient to shocks and, perhaps, less reliant on the US dollar. China is setting up a working group led by South Korea and France to develop proposals, including on ways to strengthen the role of the International Monetary Fund’s (IMF) reserve currency unit, which is set to incorporate China’s yuan as a component next year.
China also wants a discussion around whether some commodities should be priced in the IMF’s reserve currency, known as Special Drawing Rights or SDRs, according to a European official involved in the G20 talks. Notably absent from a senior role so far is the US, the owner of what is still the world’s dominant currency. China’s leadership has for years sought to strengthen the international use of the yuan, and encourage debate about lessening reliance on the dollar.
A surge in demand for dollars as a haven during the 2007/09 global financial crisis first spurred China’s calls. As chair of the G20 in 2010, South Korea attempted to lead an effort to widen the international financial safety net, urging the adoption of permanent currency swop lines.
The US nixed the idea, with then-Federal Reserve chairman Ben Bernanke saying officials should not provide a “permanent service” to financial markets.
Half a decade later, Chinese President Xi Jinping has the chance to put his imprint on a forum first set up during the Asian financial crisis of the late 1990s as a grouping of the largest emerging and developed markets to address systemic risks.
“We have seen China grasping every multilateral occasion to enhance its image and leadership role, be it regionally or globally,”said Yun Sun, a senior associate with the East Asia Programme at the Stimson Centre in Washington.
“There is little reason for China not to fully exploit the G20 chairmanship.”
China has an ever bigger stake in global financial stability as it endeavours to reduce its own limits on cross-border capital flows, part of a broader plan to give markets a more prominent role in the Communist-run country. Among the challenges for the coming year will be weathering the Fed’s shift to monetary tightening, potentially sending emerging market currencies lower as money heads into higher-yielding dollars.
The G20 under China’s presidency will also need to consider whether to let expire $250 billion (R3.5 trillion) worth of its reserve unit issued in 2009 to boost liquidity during the global financial crisis. – Bloomberg CHINA’S foreign exchange reserves, the world’s largest, fell by $87.2 billion (R1.25 trillion) in November to $3.44trln, central bank data showed yesterday, the lowest level since February 2013 and the third largest monthly drop on record.
Analysts blamed the fall partly on 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.
The onshore yuan is down more than 3 percent so far this year and remains under pressure as investors expect US interest rates to be increased for the first time in around a decade later this month.
The fall in foreign exchange reserves was the biggest since a record monthly drop of $93.9bn in August. China’s foreign exchange reserves have declined for the last five quarters and posted a record quarterly fall in the third quarter.
“The pick-up in capital outflows appears to have been predominately driven by increased expectations for renminbi (yuan) depreciation,” Julian CHINA probably increased central bank gold reserves in November by about 21 tons, the most in at least five months, as prices had the biggest drop in more than two years.
The value of gold assets was $59.52 billion (R853.58bn) at the end of last month from $63.26bn at end of October, according to data on the People’s Bank of China website released yesterday.
That works out to 56.05 million ounces or about 1.743tons, based on the London Bullion Market Association afternoon price Evans-Pritchard at Capital Economics said. “A rise in offshore interest rates due to the increased likelihood of a December Fed rate hike will also have added to outflow pressures.”
China’s surprise devaluation of the yuan on August 11 fuelled a wave of capital outflows on fears the world’s auction on November 30, calculations show. The stash was 55.38million ounces a month earlier.
China ended six years of secrecy in July over how much gold it is hoarding as it seeks to spur greater global use of its currency and diversify its $3.44 trillion in foreign-exchange reserves.
Bullion prices slumped 6.8 percent in November, the biggest monthly decline since June 2013.
China’s gold reserves rose by 14 tons in October, 15 tons in September, 16 tons in August and 19 tons in July.
It disclosed on July 17 that holdings had surged 57 percent since 2009. second-largest economy might be slowing more sharply than thought, and on worries of a possible interest rate rise by the US Federal Reserve.
The yuan’s depreciation has been even more marked in the offshore market, where it has lost more than 4 percent this year.