Chinese Reserves Slide to $2.998 Trillion
Although headlines focus on the drop below $3 trillion in reserve, the pace of decline continues to ease and the renminbi strengthened at the same time.
The country’s stockpile of foreign currency dropped for the seventh straight month in January to $2.9982 trillion from $3.0105 trillion in the previous month, data published by the People’s Bank of China (PBOC) showed.
The last time it fell below $3 trillion was in February 2011, when it hit $2.9914 trillion. The January figure also surprised the market on the downside as economists’ estimates ranged from $2.95 trillion to $3.03 trillion, according to Bloomberg News.
But last month’s loss of $12.3 billion narrowed significantly from a reduction of $41.1 billion in December, according to central bank figures.
If you’re keeping score using M2, the worst thing that happened in January was the rise in the renminbi and the rumored lending boom. China’s forex reserves now cover a little more than 13 percent of reserves. To put the change in M2 coverage since the August 2015 depreciation in perspective, USDCNY would have to be 8.70 to achieve that month’s coverage ratio, if we control for everything but the currency. This is obviously not a way to value the currency in the market, but it does show how rapidly money supply and reserves have diverged.