China forex reserves fall to six-year lows

China forex reserves fall to six-year lows
China's forex regulator, the State Administration of Foreign Exchange said on Wednesday that China's foreign exchange reserves declined for a fifth straight month in November. The world's largest currency reserves fell to 3.052 trillion US dollars last month, down 69.1 billion US dollars, or 2.2 percent from October, marking China’s lowest foreign exchange reserves' level since March 2011.
 The decline in forex reserves comes as a result of a firmer US dollar and a depreciating Chinese yuan. Since the reserves are calculated in US dollars, the weakening of other currencies held by China against the dollar also results in decline.

The Chinese yuan has seen a continuous depreciation in the past few weeks. Accelerated economic growth in the United States, a potentially imminent interest rate hike and expectations ahead of Donald Trump's expansionary fiscal policies have already caused the Dollar Index to advance 6 percent in the last two months. The Chinese yuan has weakened around 3 percent against the dollar during that period.

Despite the continual depreciation, experts are pointing out that the Renminbi is still strong when measured against world currencies other than the dollar.

"There is some misconception in the market that everyone is looking at Renminbi versus dollar. This is the most important of course, but people only look at that exchange rate", said Gu Sairong, Head of Global Market Sales for China at Société Générale, a French financial services group. 
 

"Of course China is doing international trade with all the other countries, including the eurozone, Japan, UK. So if you look at a currency such as Renminbi versus other currencies, we need to look at the whole basket instead of just looking at Renminbi versus dollar."

In fact the Renminbi has been rising against the Japanese yen since the beginning of November. The Renminbi rate against the euro has been steady at 7.3 yuan per euro for at least two weeks.