Increase of 8.6 billion in November attributed to rising bond prices and a stronger US dollar
Chinese foreign exchange reserves rose by $8.6 billion (7.5 billion euros; ￡6.7 billion) in November after three months of declines, influenced in part by rising bond prices in some major countries, the central bank said on Dec 7.
By the end of last month, foreign exchange reserves stood at $3.06 trillion, a net drop of $78 billion since the end of 2017, the bank said.
Last month’s increase was a result not only of higher bond prices but also a strengthened US dollar, said Wang Chunying, spokeswoman for the State Administration of Foreign Exchange.
While there could be some fluctuations, China’s foreign exchange reserves are expected to remain stable, given the stable international balance of payments, Wang said.
A more flexible foreign exchange rate regime in China could help to keep reserves steady, analysts say.
In its latest sovereign rating report, Fitch Ratings said it expects Chinese authorities to continue favoring flexibility and permitting more volatility in the yuan, rather than using the foreign exchange reserve to offset currency weaknesses.
“This would largely preserve China’s sizable foreign reserve buffers,” the report said.
China may allow more flexible floating of the currency next year, as the monetary authority has said it would push forward the foreign exchange reform.
“Cross-border capital flows should be monitored by the Chinese monetary authority next year to prevent unexpected fluctuations, which have happened in some emerging market economies this year,” says Wang Shengzu, co-head of the Investment Strategy Group Asia at Goldman Sachs Private Wealth Management.
But pressure could also accumulate as the surplus in the current account may continue to narrow in 2019, according to analysts, and there is potential for higher capital outflows stemming from volatile market sentiment and further monetary policy divergence with the United States.
(China Daily European Weekly 12/14/2018 page25)