Chinese foreign exchange reserves shrank in September for the second consecutive month. According to data from the People’s Bank of China (PBoC) they shrank by 22.69 billion USD to 3.087 trillion USD, which is the lowest value since July 2017 and significantly below the market expectations of 3.105 trillion USD. In August, the Chinese foreign exchange declined by 8.23 billion USD.
“The small decline in reserves reflects a change in the value of foreign currencies and asset prices”, said the State Administration for Foreign Currencies.
For the reduction of foreign exchange reserves, the competent body accused predominantly the lower prices of foreign government bonds owned by China. Authorities do not clarify which bills exactly refer to. The bank talks about “significant external uncertainties”, but it also states that reserves will remain stable, although there may be some fluctuations.
Meanwhile, the value of gold reserves shrank to 70.327 billion USD from 71.228 billion USD in August.
For some time, the People’s Bank of China has made some efforts to strengthen the local currency. It introduced a mechanism that sets the yuan official daily reference rate against the US dollar. In addition, new rules were introduced to make the bets against the yuan more expensive.
The economists, however, expect the fall in mandatory reserves for Chinese banks, which was also accepted on Sunday, to put the yuan under pressure. The measure is expected to release some 152 billion EUR of liquidity. China, which suffers from the trade dispute with the US, intends to strengthen the local consumption.