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Tag Archives: Foreign Exchange Reserve

Charts: China Forex Exchange Reserve

Source : Trading Economics

China Central Bank to Cut FX Reserve Ratio to Help Limit Yuan Weakness

China’s central bank said on Monday it will cut the amount of foreign exchange reserves that financial institutions must hold, a move seen as aimed at slowing the yuan’s recent depreciation.

The People’s Bank of China said it would cut the foreign exchange reserve requirement ratio (RRR) to 6% from 8% beginning Sept. 15, according to an online statement.

The PBOC said the reduction aimed to improve “financial institutions’ ability to use foreign exchange capital,” the statement added.

The move came after the Chinese yuan’s recent slide to two-year lows. The yuan has depreciated by 8% against the dollar in the year to date, as a result of broad dollar strength in global markets and China’s worsening economic slowdown.

The reduction in reserve requirements would boost dollar liquidity. Based on end July data, when foreign exchange reserves stood at $953.7 billion, the lower requirements would free up around $19 billion.

“It is not a huge amount compared to cross border receipts,” said Frances Cheung, rate strategist at OCBC Bank.

“Still, the market is mindful of the signal the central bank sends.”

Both onshore and offshore yuan briefly bounced about 200 pips following the PBOC statement and pared some of their earlier losses.

Some traders and analysts said the cut was expected and was partly a signal to the market that rapid declines in the yuan would be unwelcome.

“As recent daily yuan midpoint fixings persistently came in stronger than market expectations, the PBOC’s official action to stabilise the yuan was already within market expectations,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

The PBOC has been setting firmer-than-expected midpoint guidance rates over the past two weeks, with many market participants interpreting it as a sign of official efforts to rein in the yuan’s weakness.

Bruce Pang, chief economist at Jones Lang Lasalle, said Monday’s announcement showed that the authorities have started to adopt appropriate policy tools and macro-prudential tools to iron out excess yuan volatilities.

“It could cool down one-way depreciation bets against the yuan and alleviate the pressure of a fast yuan depreciation,” Pang added.

Major investment houses have cut their yuan forecasts as its fall against the dollar accelerated since mid-August, with some expecting a breach of the 7-per-dollar milestone before next month’s politically sensitive Party Congress despite authorities’ efforts to slow the slide.

The PBOC last cut the FX reserve requirement ratio by 100 basis points in April, in a bid to rein in a sliding yuan and make it less expensive for banks to hold dollars.

Source : Reuters

Charts: China Foreign Exchange Reserves Declined in June 2022

The lowest since March 2020

Source : Trading Economics

Charts: Israel Cuts US Dollar Holdings, Adds Chinese Yuan To Its $206 Billion Reserves

2% yuen, 3.5% each of Canadian and Australian Dollars, 5% British Pound, 20% Euro and 61% US Dollars in 2022

Source : Bloomberg and IMF

Charts: U.S. Dollar Denominated Exchange Reserve Declined in Q3, 2021

Source : Wolf Street

China Foreign Exchange Reserves Rose to the Highest Level in More than Five Years at the End of July, 2021

Gold reserves increased to USD 114.37 billion from USD 110.45 billion.

Source : Trading Economics

Chart of the Day: US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low

Source : IMF

US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low

Serkan Arslanalp and Chima Simpson-Bell wrote . . . . . . . . .

The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions. If the shifts in central bank reserves are large enough, they can affect currency and bond markets.

Our Chart of the Week above looks at the recent data release from a longer-term perspective. It shows that the share of US dollar assets in central bank reserves dropped by 12 percentage points—from 71 to 59 percent—since the euro was launched in 1999 (top panel), although with notable fluctuations in between (blue line). Meanwhile, the share of the euro has fluctuated around 20 percent, while the share of other currencies including the Australian dollar, Canadian dollar, and Chinese renminbi climbed to 9 percent in the fourth quarter (green line).

Exchange rate fluctuations can have a major impact on the currency composition of central bank reserve portfolios. Changes in the relative values of different government securities can also have an impact, although this effect would tend to be smaller since major currency bond yields usually move together. During periods of US dollar weakness against major currencies, the US dollar’s share of global reserves generally declines since the US dollar value of reserves denominated in other currencies increases (and vice versa in times of US dollar strength). In turn, US dollar exchange rates can be influenced by several factors, including diverging economic paths between the United States and other economies, differences in monetary and fiscal policies, as well as foreign exchange sales and purchases by central banks.

The bottom panel shows that the value of the US dollar against major currencies (black line) has remained broadly unchanged over the past two decades. However, there have been significant fluctuations in the interim, which can explain about 80 percent of the short-term (quarterly) variance in the US dollar’s share of global reserves since 1999. The remaining 20 percent of the short-term variance can be explained mainly by active buying and selling decisions of central banks to support their own currencies.

Turning to this past year, once we account for the impact of exchange rate movements (orange line), we see that the US dollar’s share in reserves held broadly steady. However, taking a longer view, the fact that the value of the US dollar has been broadly unchanged, while the US dollar’s share of global reserves has declined, indicates that central banks have indeed been shifting gradually away from the US dollar.

Some expect that the US dollar’s share of global reserves will continue to fall as emerging market and developing economy central banks seek further diversification of the currency composition of their reserves. A few countries, such as Russia, have already announced their intention to do so.

Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency. As our Chart of the Week shows, any changes to the US dollar’s status are likely to emerge in the long run.

Some 2.45% of the reserves were held in the Chinese currency at the end of the first quarter, the IMF data showed.

The latest figure marked the fifth straight quarter in which the yuan’s share of global forex reserves grew, up from 2.27% in the fourth quarter of last year and 1.08% in the fourth quarter of 2016, when the IMF started tracking the yuan.

Source : IMF

China’s Foreign Exchange Reserves Rose to USD 3.178 trillion in November 2020

Source : Trading Economics and Bloomberg