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    Economy

    Record fall in forex reserves during Q1

    1
    2015-04-15 09:02China Daily Editor: Si Huan

    Foreign exchange reserves held by China slid by the most on record during the first quarter, fueling speculation the central bank sold holdings to support the yuan as money flowed out of the world's second-largest economy.

    Reserves dropped $113 billion to $3.73 trillion, the third straight quarterly decline, data from the central bank showed on Tuesday. Yuan positions on the People's Bank of China's balance sheet, a barometer of capital flows, declined by a record 252.1 billion yuan ($40.6 billion), according to a separate statement.

    "The PBOC intervened in the first quarter because capital outflows were serious," said Hu Yuexiao, an economist at Shanghai Securities Co Ltd. "An advancing dollar and weak economic fundamentals in China caused the capital outflows, which will probably continue this year. So the central bank will keep intervening to keep the currency stable."

    While the PBOC does not disclose the composition of its reserves, an 11 percent drop in the euro in the first quarter would have weighed on the dollar value of its holdings. Purchases of its own currency to offset weakness are a reversal from years of doing the opposite to keep the yuan competitive.

    The dollar strengthened against 14 of 16 major currencies in the first quarter, according to data compiled by Bloomberg. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 leading counterparts, jumped 6.2 percent.

    "The dollar has been very strong over the past quarter, and that's affected the value of Chinese reserves held in other currencies," said Mark Williams, chief Asia economist at Capital Economics Ltd in London. "The days of massive intervention by the People's Bank to stop the yuan from strengthening are over."

    Falling yuan positions at Chinese financial institutions in January suggested the central bank had intervened to curb yuan weakness, Barclays Plc and Goldman Sachs Group Inc said in research notes published in the past two months.

    The decline in reserves could "be affected by the PBOC's intervention to shift the renminbi from depreciation to modest appreciation in recent months", Australia & New Zealand Banking Group Ltd said in a note.

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