Markets

Record monthly fall in China’s forex reserves

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China’s foreign exchange reserves posted their biggest monthly fall on record in August, reflecting >Beijing’s attempts to halt a slide in the yuan and stabilise financial markets following its surprise move to devalue the currency last month.

China’s reserves, the world’s largest, fell by $93.9 billion last month to $3.557 trillion, central bank data showed on Monday.

The drop left market watchers questioning how sustainable > China’s efforts to support the yuan are, as capital flows out of the country due to fears of an economic slowdown and prospects of rising U.S. interest rates.

The offshore yuan weakened following the data release to trade at a record discount to the onshore rate, suggesting investors believe the official rate is being kept too high.

There was relief, though, that the dip in reserves had not been larger, with some commentators predicting in the run-up to the announcement that the drop could be as much as $200 billion.

Still, economists estimated that the fall was probably slightly above the $94 billion figure, given the positive impact of valuation changes as the dollar fell against major currencies. A large portion of China’s reserves are held in U.S. Treasuries.

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Printable version | Jan 26, 2020 7:23:02 AM | https://www.thehindu.com/business/markets/record-monthly-fall-in-chinas-forex-reserves/article7625877.ece

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