People’s Bank of China’s Forex Reserves Plunged by $155 Billion

People’s Bank of China’s Forex Reserves Plunged by $155 Billion written by: Truearnab

The People’s bank of China (PBOC), China’s central bank sold a record amount of forex reserves in December last year, which is almost double than any of its previous months. The amount has gone up as it stepped up Yuan purchases to stem the ongoing slide in the currency.

According to a data released yesterday, People’s Bank of China’s forex reserves plunged by the equivalent of 708 billion Yuan or $155 billion to 24.85 trillion Yuan. It compares with a drop of 2.21 trillion Yuan for the entire 2015 and is similar to the US $107.9 billion slide in China’s forex reserves earlier reported for December.

The Yuan almost fell 1.5 percent last month, most since August thanks to an unexpected devaluation of the currency was announced. In recent months, China is supporting its exchange rates in both Hong Kong and Shanghai and seeks to limit depreciation that agitated global finance markets. However, that support is coming at an expense of country’s forex reserves as slowing growth spurs an exodus of funds in the world’s second largest economy.

According to Commerzbank AG economist Zhou Hao, the record drop illustrates the capital was leaving at a faster pace and the bank supported the exchange rate in December. He also said that the trend is likely to continue in the next few months as the expects Yuan to go down further, but the exchange rate to remain stable in near future as investors will now become more cautious due to the recent intervention by PBOC.

The Yuan strengthened 0.1 percent against the US dollar in Shanghai this week, after sliding 1.5 percent for the last 5 days through January 8, which is definitely a good sign and a bright spot in China’s economy.

Ma Jun, chief economist of PBOC research bureau said this week that the downward pressure on the Yuan will settle down after investors absorb a shift to valuing it against a set of other currencies and away from associating it to dollar.

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