China’s Foreign Exchange Decrease in May

china's economy

China’s foreign exchange reserves decreased by $28 billion in May to its lowest level since late 2011.

The world’s largest currency hoard declined to $3.19 trillion in May, after rising $7.1 billion in April and $10.3 billion in March, data from the People’s Bank of China showed on Tuesday.

Some analysts have attributed the drop to the dollar rally and sporadic official intervention, while other analysts said the drop did not necessarily suggest capital outflows.

“It mostly reflects exchange rate fluctuations which we estimate lowered the dollar value of the portion of the reserves held in other currencies by $25 billion,” said Julian Evans-Pritchard, from Capital Economics.”

Economists surveyed had earlier predicted foreign exchange reserves would fall to $3.20 trillion from $3.22 recorded in April.

“Depreciation expectations faded and the central bank didn’t burn its reserves to intervene in the foreign exchange market,” said Li Wei, a China and Asia economist at Commonwealth Bank of Australia in Sydney. “The drop was largely due to the valuation effect of a strong dollar, which leads to the depreciation of other currencies.”

However, despite the weakness against the greenback, the central bank hasn’t had to deplete its cash to boost the yuan as stability returns to the yuan.

“The market was pretty calm as the yuan depreciated,” Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen, said before the data release. “The central bank didn’t interfere in any significant way.”

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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