China's forex reserves rise unexpectedly in June
- Author: Sonia Alvarado Jul 08, 2016,
Jul 08, 2016, 0:30
China is requiring foreign banks that conduct foreign-exchange forward trading for their clients to set aside reserves-a move that will make it more expensive to bet on the yuan's weakness.
In September 2015, China's renminbi was not featured in Russia's foreign currency reserves, but according to the bank's latest report published on July 4, by December 31, 2015 yuan made up 0.1 percent of the bank's foreign currency reserves.
The central parity rate of the yuan against the USA dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
"We don't know how far the yuan would fall", said a trader at a Chinese commercial bank in Shanghai.
The yuan has fallen roughly 3 per cent against the United States dollar since March, adding to uncertainties for investors already rattled by Brexit and slowing global economic growth.
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A Russian central bank spokeswoman said yuan assets did not yet count as part of Russia's official gold and forex reserves, since the International Monetary Fund has not yet granted the yuan such reserve status.
And it has been a convenient time for China to weaken the yuan, too.
The consumer inflation rate may have dipped slightly to 1.8 percent in June, which would be a five-month low, while producer deflation may show further signs of moderating, easing strains on companies' profit margins.
Forex reserves likely dropped $20 billion to $3.17 trillion, after falling in May to their lowest since December 2011.
The yuan declined to 6.6642 just after opening on account of heavy dollar buying in the market. "The change in foreign exchange reserves reflect valuation effects with the strong Japanese yen...", said Raymond Yeung, senior economist at ANZ in Hong Kong. This would be equivalent to 4.5 percent depreciation for the year, the same as the record fall of 4.5 percent last year. "I suspect the yuan would weaken to more than 6.8 per dollar before the central bank would say that's enough".