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October 24, 2014

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Home » Business » Finance

SAFE official blames stronger dollar for drop in forex reserves

By Feng Jianmin | October 24, 2014, Friday | Print Edition

A TOP official from China’s foreign exchange regulator said yesterday that the recent decline in the country’s forex reserves was not a sign of capital flight out of the country.

The People’s Bank of China last week reported the country’s foreign exchange reserves had declined by a record US$100 billion in the third quarter to US$3.89 trillion at the end of September, still the world’s largest.

The figure triggered worries that the weak performance of Chinese economy and the local currency had resulted in capital flight, but Guan Tao, head of the department of international payments at State Administration of Foreign Exchanges, said the decline was mainly due to the devaluation of non-US assets.

“Strong appreciation of the US dollar in the third quarter resulted in the devaluation of other assets...,” Guan said at a conference in Beijing.

“It is only a change in book value, not related to real losses or actual cross-border money flow.”

The foreign exchange authority said China recorded net foreign capital inflow in the first nine months but the speed was slowing down quarter-by-quarter as revealed by the banks’ purchase of foreign exchanges. Banks purchased a net US$159.2 billion in the first quarter, US$29 billion in the second, and sold a net US$16 billion in the third quarter, official data showed.

Guan said the outflow was normal and not risky, mainly due to the recent fluctuations in the yuan exchange rate and the uncertainties of overseas and domestic economic outlook.

“Volatility in cross-border money flow will be the ‘new normal,’” said Guan, adding that China was fully capable of withstanding the fluctuations with rich foreign exchange reserves and the government’s commitment to reform and stabilizing the economy.

The yuan has been on steady appreciation since June from a nearly 3 percent slump earlier this year which many economists said was due to central bank’s intentions to squeeze speculative foreign capital from the domestic economy.

Guan said that the central bank was gradually ceasing intervention in the foreign exchange market, and allowing greater volatility in the exchange market.

He urged companies to brace for greater foreign exchange uncertainties while the authorities work on more financial tools that the companies can use to hedge the risks.

He said China would be closely monitoring the impact of any changes in US monetary policy and accordingly draw up response plans to it.

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