Chinese reserves decline on falling currencies and large capital outflows

By FXStreet FXStreet (Mumbai) – China’s reserves fell more than $87 billion in November, much higher than the $33 billion estimated, marking the third largest decline in reserves recorded by China. It is only slightly short of the $94 billion drop in reserves that the economy witnessed in August. Reserves had reached their zenith in June 2014 touching $3.993 trillion.

Back in October, when data on reserves had highlighted a decline in reserves for September, Singapore-based Zhou Hao, senior economist in Asia at Commerzbank had warned more fall was likely in the coming months. He had said, “As PBoC intervened into the forward market in the past month, the foreign reserves will likely plunge again when these forward contracts matures.”

How fall in major currencies against the dollar led the Chinese reserves to slide?

Major currencies weakened against the dollar in recent times. The euro has been falling steeply. It fell 4 per cent in November. China’s euro holdings were hit in the process. The depreciation of the euro in itself accounted for a very sharp decline in the value of China’s reserves. A third of the decline in China’s reserve holding was due to the loss of euro’s …read more

Source:: FX Street