Foreign currency reserves of China declined in December to 6-year low

Foreign currency reserves of China declined to near six-year low in December but remained above the critical level of 3 trillion USD, against the attempts of the authorities to stabilize the national currency. In December, the foreign currency reserves of China reported a decline of 41 million USD, which is slightly less than expected, but the sixth consecutive month of decline.

The analysts had expected a decline of foreign currency reserves of China by 51 million USD.

The main concerns in the markets are related with the speed which Beijing is spending “ammunition” for the protection of the yuan and to curb capital flight. If the pressure on the Chinese national currency continues, Beijing will certainly tighten further outflows through administrative and regulatory measures.

Moreover, if the foreign exchange reserves of China continue to melt rapidly, the central government will have no other choice and will proceed to another single sharp devaluation as the summer of 2015. This will surely bring further tensions with the administration of new US President Donald Trump.

In recent weeks, China has stepped up efforts to strengthen the yuan and limiting capital outflows immediately before the inauguration of Trump and New Year then.

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