Chinese currency reserves shrank in October

Chinese currency reserves shrank in October at the fastest pace from the beginning of the year. The stronger dollar helped to extent in controlling the outflow of capital and reserves shrinking value. Foreign currency reserves of the People’s Bank of China decreased by 45.7 billion USD to 3.12 trillion USD in October, disappointing the economists and market participants.

The decline in October was actually less than most people had expected, suggesting that the central bank does not melt reserves to support the local currency. This probably indicates that the People’s Bank of China is more tolerant of volatility in the exchange rate

The data come at a time of renewed weakness in the exchange rate of the Chinese yuan. Last month, the currency depreciated by 1.53%, which is the biggest drop since the devaluation in August 2015. There were suspicions that regulators in Beijing support the course before the G-20 meeting in September and before the currency to join the Special Drawing Right (SDR) of IMF on 1 October, which have weakened this support, as exports tumbled at the fastest pace in seven months.

Nearly 30 billion USD from the decline in foreign exchange reserves is due to the depreciation of the yuan, and the interventions of the central bank amounted to only 10-15 billion USD. This looks more like an achievement, not a disappointment, given the large devaluationary pressure last month.

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