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14 Apr 2015
China’s currency reserves fall for the third consecutive quarter – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team review the Chinese currency reserves data for the period ending March 31, 2015, noting that the USD value of reserves fell $113 bln.
Key Quotes
“China reported that its currency reserves fell for the third consecutive quarter in the three months ending on March 31. The dollar value of reserves fell $113 bln to $3.73 trillion. Over the three quarter period, China's reserve holdings have fallen by roughly $263 bln.”
“To appreciate what is happening in China it is helpful to place it within the global context. IMF COFER data covers only through the end of last year. In the Q3 and Q4, the IMF estimates that world reserve holdings fell by almost $390 bln. The PBOC reports that its reserves fell by about $150 bln over the same period.”
“Both valuation considerations and capital outflows explain the decline in China's reserve figures. China does not report the currency allocation of its reserves. This could change in the not too distant future.”
“If China wants to increase its chances that the yuan will be included in the SDR basket, it behooves it to adopt the IMF's best practices which means reporting the allocation of its reserves. Although the IMF's report does not reveal country specific data, the market will quickly try to back out the new information and by doing so will like have a good sense of China's allocations.”
“In the H2 14, as China's reserves fell by $150 bln, it recorded a merchandise trade surplus of $278.5 bln. In Q1 15, reserves fell by $113 bln with a $123.7 bln trade surplus. The gap between the two exaggerates the portfolio capital outflows because other factors, like a deficit on services and foreign direct investment, in addition to the valuation adjustment.”
“Conduct a simply exercise. At the end of last year China held $3.84 trillion in reserves. We do not know the euro's share, but let's assume it is the same as those that report currency allocations, which is 22.2%. The euro fell by 11.3% on Q1. That alone could account for $96 bln of the $113 bln decline in reserves that China reported earlier today.”
Key Quotes
“China reported that its currency reserves fell for the third consecutive quarter in the three months ending on March 31. The dollar value of reserves fell $113 bln to $3.73 trillion. Over the three quarter period, China's reserve holdings have fallen by roughly $263 bln.”
“To appreciate what is happening in China it is helpful to place it within the global context. IMF COFER data covers only through the end of last year. In the Q3 and Q4, the IMF estimates that world reserve holdings fell by almost $390 bln. The PBOC reports that its reserves fell by about $150 bln over the same period.”
“Both valuation considerations and capital outflows explain the decline in China's reserve figures. China does not report the currency allocation of its reserves. This could change in the not too distant future.”
“If China wants to increase its chances that the yuan will be included in the SDR basket, it behooves it to adopt the IMF's best practices which means reporting the allocation of its reserves. Although the IMF's report does not reveal country specific data, the market will quickly try to back out the new information and by doing so will like have a good sense of China's allocations.”
“In the H2 14, as China's reserves fell by $150 bln, it recorded a merchandise trade surplus of $278.5 bln. In Q1 15, reserves fell by $113 bln with a $123.7 bln trade surplus. The gap between the two exaggerates the portfolio capital outflows because other factors, like a deficit on services and foreign direct investment, in addition to the valuation adjustment.”
“Conduct a simply exercise. At the end of last year China held $3.84 trillion in reserves. We do not know the euro's share, but let's assume it is the same as those that report currency allocations, which is 22.2%. The euro fell by 11.3% on Q1. That alone could account for $96 bln of the $113 bln decline in reserves that China reported earlier today.”