Chinese Foreign Exchange Reserves At 6-Year Low

China’s foreign exchange reserves have slipped below the $3 trillion mark, as measured in January. The latest tally is the lowest in roughly six years, The Wall Street Journal reports.

The data from the People’s Bank of China stated that the $2.99 trillion in reserves was off $12.3 billion from the previous month and outpaces the $1 billion drop that had been estimated by economists. The new numbers show continued momentum to “move money out” even as the central bank seeks to “contain asset bubbles without triggering a liquidity crunch” with capital seeking investments outside the country, said the WSJ.

The foreign exchange regulator, the State Administration of Foreign Exchange, has said that currency reserves are adequate and will continue to provide a level of support to the yuan. And as always, regulators must be wary of market liquidity amid borrowing that has picked up in areas such as the bond market.

The WSJ noted that the country’s central bank has been raising short-term borrowing costs levied on financial firms to help tamp down “froth” in markets and has left policy rates alone. But cash outflow beyond China’s borders means less money to lend out. The eventual trend, economists told the WSJ, may be one where market rates continue to reduce liquidity levels but translate into higher costs for both businesses and consumers, truncating activity in those sectors.


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