Biggest fall in 20 years hits forex reserves

BEIJING. KAZINFORM - China's foreign exchange reserves shrank by $180 billion in the third quarter－the largest fallin two decades－following the central bank's move to hold the yuan's value through sellingUS dollars.

However, the reserves fell by $43 billion in September after an unprecedented drop of $94billion in August, suggesting that depreciation pressure on the yuan is easing. The figures, released by the People's Bank of China on Wednesday, also showed that by theend of last month the foreign exchange reserves stood at $3.51 trillion－still the world'slargest. Declines in the reserves in recent months have sparked fears among investors about theirsufficiency, liquidity and usability. Another question being raised is whether the squeezedreserves can cover the nation's foreign debt, according to Chinadaily.com.cn .

Recent research by UBS AG estimated that more than $2.2 trillion of the $3.5 trillion reserveswere held in developed countries' government bonds, with about $1.4 trillion in US treasuries. The foreign exchange reserves are four times the external debt amount and can cover 20months of imported goods and services, according to the research. Tom Orlik, an economist at Bloomberg, said, "A slower foreign exchange drop eases fearsabout extreme selling pressure on the yuan." The currency's value stabilized last month after the biggest tumble in two decades followingthe People's Bank of China's adjustment of the yuan's daily exchange reference rate againstthe US dollar on Aug 11. The yuan rose by 0.3 percent last month against the dollar compared with a fall of 2.6 percentin August, according to the Shanghai-based China Foreign Exchange Trade System. President Xi Jinping committed to the yuan's stability during his state visit to the United Stateslast month. Premier Li Keqiang has also reiterated on various occasions that there will be nofoundation for a further depreciation of the currency. These were signs that at least in the short term the depreciation pressure on the currency hadbeen impaired, Orlik said. It also means the leaders are prepared to defend the currency at itspresent level for a while longer, and the total amount of the foreign exchange reserves willcontinue to decline, he added. Economists said depreciation pressure on the yuan would remain as long as there was apossibility that the US Federal Reserve would raise interest rates in the near term.