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Forex reserves remain reasonable
Last Updated: 2022-10-08 06:57 | China Daily
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The recent decline in China's foreign exchange reserves is still within a manageable range and will not alter the trend for the country's forex reserves to remain generally stable, experts said on Friday.

Nevertheless, they underlined the necessity for Chinese policymakers to boost domestic economic momentum and shun any irrational and drastic weakening of the renminbi, which could threaten the safety of foreign exchange reserves.

The country's forex reserves fell for the second straight month to $3.029 trillion by the end of September, the lowest level in more than five years, due to a strong US dollar and a fall in global financial markets.

The amount marked a slight drop of $25.9 billion, or 0.85 percent from a month earlier, the State Administration of Foreign Exchange said on Friday. Since the beginning of the year, the nation's foreign exchange reserves have dropped by $221.2 billion, or 6.8 percent.

The slide in China's forex reserves echoed a broader decline in global foreign currency reserves, which recorded a decrease of about $1 trillion, or 7.8 percent, this year to $12 trillion, according to Bloomberg.

Officials and experts attribute shrinking forex reserves in China and other economies mainly to a strong dollar that has deflated reserves denominated in other currencies in dollar terms.

Amid expectations of sharp US monetary tightening, the dollar index — which measures the strength of the greenback against a basket of currencies — surged to 112 by the end of September, up 3.2 percent month-on-month.

"Anticipation of US interest rate hikes has become elevated, leaving the possibility of stronger-than-expected rate increases relatively low," said Tang Yao, an associate professor of applied economics at Peking University's Guanghua School of Management.

"Therefore, room for a strong greenback to further deflate China's foreign exchange reserves could be limited," Tang said, adding that the nation's robust trade surplus and the renminbi's stability compared with major nondollar currencies also help stabilize the country's forex holdings.

Wang Chunying, deputy head of SAFE, said China's economy continues to recover and features great resilience despite rising unstable external factors, thus helping keep the amount of foreign currency reserves stable.

Still, experts called for more efforts to fend off any potential rapid decline in China's forex reserves, including boosting domestic economic vitality and propping up trade and foreign direct investment.

"At present, the nation's size of foreign exchange reserves should remain in a safe range," said Yang Haiping, a researcher at the Central University of Finance and Economics' Institute of Securities and Futures.

"Yet downward pressure should be taken seriously as foreign currency reserves act as a significant buffer against a variety of external shocks and uncertainties," Yang said.

Tang from Peking University called on financial regulators to strengthen public communication to avoid irrational and drastic weakening of the renminbi, which could cause sizable capital outflows and put pressure on foreign exchange reserves.

By now, the country has seen controllable capital outflows as the nation recorded a net outflow in securities investments worth $158.6 billion in the first half, smaller than $166.4 billion in the current account surplus over the same period, SAFE said.

 

(Editor:Fu Bo)

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Forex reserves remain reasonable
Source:China Daily | 2022-10-08 06:57
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