Courtesy of Mish.
China’s Forex Reserves Fall by Record $107.9 Billion
China’s foreign-exchange reserves are close to a three-year low, following the largest yearly decline ever.
Capital flight is not only intense, it’s accelerating so much that China has undertaken measures to hide the intensity. First, let’s consider the flight.
The Wall Street Journal reports China’s Forex Reserves Fall by Record $107.9 Billion on Yuan Fears.
China’s hoard of foreign-exchange reserves continued to shrink in December, recording the biggest monthly drop ever and falling overall to its lowest level in nearly three years as worries intensify over the country’s economic slowdown.
With the $107.9 billion drop in December, Beijing’s foreign-exchange reserves have fallen every month but one since May. The data suggest the central bank is having to spend huge amounts of dollars to support an increasingly beleaguered yuan amid decelerating economic growth and the onset of higher U.S. interest rates.
“It certainly confirms the end of an era,” said Oliver Barron, head of research at investment bank North Square Blue Oak. “What we’ve been seeing is China now becoming an exporter of capital.”
December’s decline brought overall reserves to $3.33 trillion, the People’s Bank of China said Thursday. For the full year, reserves fell $512.7 billion, the largest yearly decline on record. In addition to the PBOC’s spending to support the yuan, some of December’s decrease may have stemmed from depreciating nondollar assets among the central bank’s holdings as the U.S. raised rates last month, analysts said. Higher U.S. interest rates make dollar-denominated assets more attractive to investors.
Goodbye Reserves
China’s Uses Derivatives to Hide Capital Flight
Chinese capital flight is undoubtedly higher than the Wall Street Journal chart shows. For an explanation, please consider China Finds More Discreet Ways to Support the Yuan.
Just because China is burning through its reported foreign-exchange reserves more slowly doesn’t mean it’s losing its commitment to support the yuan.
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