China’s FX Reserves Drop More Than Expected on Strong Dollar

(Bloomberg) --

China’s foreign-currency holdings fell in March by the most since late 2016, as asset prices fell and a stronger dollar pushed down the of reserves held in other currencies.

• Reserves fell to $3.0606 trillion from $3.1067 trillion in the previous month, the People’s Bank of China said Tuesday.

Key Insights

• The dollar strengthened amid global financial market turbulence, and asset prices in major countries adjusted significantly, the State Administration of Foreign Exchange said in a statement. Reserves declined due to the combined effect of exchange rate conversions and asset price changes, SAFE said.
• The Bloomberg dollar index surged to its highest since late 2016 in March as the coronavirus outbreak spread around the world, pushing investors to seek safety in havens such as the dollar and yen.
• The reading is lower than the median estimate of $3.0975 trillion in a survey of economists
• “The drop is due to falling stock prices in major economies, which pushed down the of the reserves, rather than capital outflow,” said Zhou Hao, senior Emerging Markets economist at Commerzbank AG in Singapore.

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• However, not all analysts thought that the decline was just due to valuation effects: “The drop in China’s FX reserves is far bigger than can be accounted for by FX and portfolio valuation changes,” according to Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore.
• “This suggests that the authorities may have intervened to halt the yuan’s decline during March, and could explain why there was very strong support at the 7.12 level,” he said, referring to the of the currency in dollars.
• The of gold reserves dropped slightly to $100.79 billion
• See table for more details: China’s End-March Forex Reserves at $3.0606 trillion

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