Speculative forces, short-term yuan depreciation 'cause fourth monthly fall'
The decline in China's foreign exchange reserves in October has revealed risks within the currency markets, propelled by speculative forces and short-term depreciation of the yuan against the U.S. dollar, an expert said on Monday.
The reserves fell for the fourth consecutive month in October to $3.121 trillion, a drop of $45.7 billion from the previous month, according to data released Monday by the State Administration of Foreign Exchange (SAFE).
The drop in October was the biggest monthly decline since January and much higher than the dip of $26 billion economists polled by Reuters had expected, Reuters reported. The nation's foreign exchange reserves are now at the lowest level since March 2011, according to Reuters.
The decline was mainly due to speculative forces in the foreign exchange market, according to Gao Liankui, research program director of China and World Economic Governance at the Department of Economics of the Renmin University of China in Beijing.
"There are some asset management firms taking advantage of the uncertainties surrounding a potential interest rate hike in the U.S. and the exchange rate between the yuan and the U.S. dollar," Gao told the Global Times on Monday.
"These so-called asset management firms have used these uncertainties to sweet-talk some Chinese investors into diverting their investment into overseas markets," Gao noted.
And the harm of such action is great not only to the investors themselves but the country as a whole, because investors could lose lots of money if their overseas assets lose value, and that's not good for the Chinese economy, according to Gao.
He noted that the government should step up its efforts in cracking down on such speculation and guide more investments into the domestic market.
These outbound investments are betting on continued depreciation of the yuan and appreciation of the dollar, but there is no basis for either development to occur, Gao said.
"Yes, there are expectations for the U.S. dollar to continue to appreciate, but such expectations are based on the possibility of an interest rate hike," he said, adding that the yuan's recent depreciation is not sustainable because of the overall stable economy.
The yuan declined more than 1.5 percent against the dollar in October, and foreign exchange market analysts expect the yuan to depreciate by nearly 2 percent more in the next 12 months, according to Reuters.
The Reuters report also said the drop in China's foreign reserves was a result of measures taken by the country's central bank to sell dollars to support the yuan as capital outflows rose.
