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China’s Foreign Exchange Reserve Level Dropped below US$3 Trillion

For the first time since February 2011, China’s foreign exchange reserve level dropped below US$3 trillion.

Well-known Chinese news site Sina recently reported that, according to Chinese State Administration of Foreign Exchange (SAFE), as of the end of January, China’s foreign exchange reserve Level dropped to US$2.998 Trillion. This represents a US$12.3 billion decline, month-over-month. For seven months in a row, the Chinese reserve level has seen declines, but this is the first time since February 2011 that it dropped this low. SAFE explained the main driver behind the drop was the need for the Chinese central bank to balance the supply and demand of foreign currencies. The offshore RMB exchange rate suffered a significant decline after the SAFE announcement. China’s central bank announced new regulations before the Chinese New Year to encourage foreign capital inflow and to discourage the outflow, anticipating the drop in the reserve level. Although China never disclosed the currency composition of its foreign exchange reserve, experts expressed the belief that the U.S. Dollar, the Euro, the British Pound and the Japanese Yen hold 66.7 percent, 19.6 percent, 10.6 percent and 3.1 percent, respectively.

Source: Sina, February 7, 2017