China’s $3 trillion in reserves questioned
In late December, ignoring the official Chinese monthly reserve data and instead using a dataset provided by China’s FX regulator SAFE on cross-border RMB flows and on onshore FX settlements, Goldman calculated the true amount of Chinese FX outflows and found that Beijing has continued to mask the full extent of its capital flight, which in November spiked to $69 billion (well above the reported, currency adjusted number of $34 billion). Furthermore, it found that “since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data.”
Even more troubling, Goldman calculated that cumulatively since August 2015 through November 2016, FX outflow totaled roughly US$1.1 trillion, while implied FX sales suggested by PBOC’s FX position (headline reserves after adjusted for currency valuation effect) were approximately US$630bn (US$540bn), indicating that the real rate of reserve depletion was nearly double that represented by PBOC reserve data.
Simple: it is an ongoing attempt by the PBOC to not precipitate the feedback loop of even further panicked selling of Yuan, even greater purchasing of Bitcoin, even more outflows, and thus, even more reserve depletion.
And while we have yet to obtain the December FX data from SAFE, overnight the PBOC reported that in December China’s reserves fell a further $41.1 billion, exactly in line with expectations, reducing China’s total reserves to $3.01 trillion, the lowest number in six years, and just fractionally above the $3 trillion cited by various analysts as the key support level below which any further capital outflow would become self-reinforcing. According to a statement by SAFE on Saturday, the December decline in FX reserves was mainly because the central bank supplied funds to maintain balance in the foreign exchange market and the depreciation of non-U.S. dollar currencies. For the full year of 2016, the SAFE said the central bank’s effort to stabilize the yuan was the key reason for the drop in reserves.
That said, when considering the discrepancy with SAFE data, it is likely that the true level of Chinese reserves is now well below $3 trillion, as a simple correlation with China’s plunging Yuan demonstrates.
To be sure, China will likely take additional measures to keep its foreign-currency stockpile from slipping too far below the key $3 trillion mark – or whatever the real level of reserves is – to avoid further hurting investor confidence and spurring further declines in the yuan, according to economists at major banks cited by Bloomberg. As documented here over the past week, in a desperate last ditch measure to halt further outflows, since the New Year China rolled out draconian new FX capital controls as well as extra requirements for citizens converting yuan into other currencies after the annual $50,000 quota for individuals reset Jan. 1.
As a result, Yuan volatility exploded last week, with the offshore rate notching up its biggest two-day gain on record just days after completing its worst yearly performance against the dollar as a result of an unprecedented spike in overnight offshore Yuan deposit rates, which forced Yuan shorts to cover all exposure.
their holdings maybe even less..its been a steady lowering of reserves..japan picking up the slack..
“China will likely take additional measures to keep its foreign-currency stockpile from slipping too far below the key $3 trillion mark – or whatever the real level of reserves is – to avoid further hurting investor confidence and spurring further declines in the yuan, according to economists at major banks cited by Bloomberg.”
“it is an ongoing attempt by the PBOC to not precipitate the feedback loop of even further panicked selling of Yuan, even greater purchasing of Bitcoin, even more outflows, and thus, even more reserve depletion.”