China's war chest of forex reserves drops to lowest since 2013
China's foreign exchange reserves fall to lowest level in more than two years as central bank forced to sell dollars to prop up yuan
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11:36AM GMT 07 Dec 2015
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China’s massive war chest of foreign exchange reserves dropped to its lowest level since February 2013 as the central bank sold dollars to prop up the yuan amid rising capital outflows.
Foreign currency reserves fell by $87.2bn to $3.44 trillion at the end of November, from $3.53 trillion a month earlier, according to the People’s Bank of China (PBOC).
This is the lowest level since February, and extends this year’s decline to $405bn.
The fall was also the biggest monthly drop since August's record $93.9bn fall, which was triggered by a surprise devaluation of the yuan.
This fuelled a wave of capital outflows as investors feared a sharper slowdown in the world's second-largest economy.
Expectations that the US Federal Reserve will raise interest rates this month for the first time since 2006 also increased outflows from China, economists said.
The International Monetary Fund admitted the yuan into its elite club of currencies this month, following hard lobbying by Beijing which sees inclusion as recognition of China's status as a global economic power.
While some believe China's inclusion in the Special Drawing Rights (SDR) basket is a sign that the PBOC will let the currency weaken, analysts at Capital Economics said a significant depreciation was unlikely.
"Although a weaker renminbi could give a mild boost to export competitiveness, the PBOC appears concerned that a depreciation would set back their efforts to encourage increased international use of the currency and could slow the process of economic rebalancing toward consumption," it said in a note on Monday.
Yi Gang, the PBOC's vice governor, said last week that the government aims "in the long term" to reduce intervention in the currency markets as much as possible.
