Is the Reserve Bank of Australia intervening in the market to hold down the remarkably resilient Aussie dollar? That’s the question commentators and economists are asking themselves following the publication of data at the end of last week that showed a significant increase in the pace of foreign exchange accumulation (admittedly from a low very low base) in August and September. Read more
China’s first quarterly decline in its forex reserves since 1998 has been described as a result of “hot money” leaving China. But there are a few other reasons — probably bigger ones.
Firstly, though, the scale of this reversal versus the usual trend was smaller than it appeared, according to Jens Nordvig at Nomura. And some of it was a response to exchange rates: Read more
China’s foreign-exchange reserves dropped for the first time in more than a decade, Bloomberg reports, as foreign investment moderated, the trade surplus narrowed and Europe’s crisis spurred investors to sell emerging-market assets. The holdings, the world’s biggest, fell to $3.18tn at the end of December from $3.2tn at the end of September, data from the People’s Bank of China showed. The quarterly drop was the first since the second quarter of 1998, according to data compiled by Bloomberg. Meanwhile the WSJ says China may eventually invest more of its $3.2tn foreign-exchange reserves in stocks, enterprises and other assets as it looks for ways to boost returns on its reserves, according to an interview with Jiang Jianqing, chairman of China’s largest state-owned bank.
China’s foreign exchange reserves, already the world’s biggest, soared again in the second quarter, adding to inflationary pressure and highlighting the risks in Beijing’s policy of holding down the value of its currency, writes the FT. Reserves are a key indicator of central bank intervention in the currency market because they reflect how much foreign exchange it has purchased in order to stabilise the renminbi. After jumping $197bn in the first quarter, reserves were up another $153bn in the second quarter. That influx of cash compounds China’s inflation troubles. Consumer prices were up 6.4 per cent in the year to June, the highest in three years. Although many analysts expect inflation to slow over the remainder of the year, the accumulation of reserves lays the groundwork for a continuation of fast money growth and so will limit the scope for any easing of price pressures. “The current intervention of the People’s Bank of China has been piling up more and more foreign exchange reserves. This is not sustainable,” said Li-Gang Liu, head of China economics at ANZ Bank.
China’s foreign exchange reserves increased by their largest amount ever in the third quarter thanks to capital inflows and a persistently large trade surplus that adds weight to complaints Beijing is intentionally undervaluing its currency, reports the FT. The country’s reserves, already by far the largest in the world, increased by $194bn in the past three months to $2,650bn, eclipsing the previous record rise of $178bn in the second quarter of 2009. The recent strengthening of the euro and yen against the US dollar explains some of the increase because China’s reserves are expressed in dollars but invested in a range of currencies and assets. But the record build up also provides evidence of an undervalued renminbi and will bolster the case of trade partners calling for faster appreciation in the currency.