China’s Foreign Currency Reserves Plunge by $99.5 Billion in January 2016
According to a People’s Bank of China report, the country’s foreign currency reserves plunged by $99.5 billion in January 2016.
China has been running down its vast foreign currency reserves in an attempt to boost the value of its own currency, the yuan, and stem a flow of funds overseas.
At $3.23 trillion, China still has the world’s biggest reserve of foreign currency holdings.
However, that has declined by $420 billion over six months and stands at the lowest level since May 2012.
The Chinese authorities fear a rapid devaluation of their currency, as it could destabilize the economy.
Many Chinese businesses hold debt in dollars and managing those debts with a severely weakened yuan could cause problems and some companies to fail.
China has been trying to engineer an ordered devaluation of the yuan, but that is proving hard to deliver.
Investors have been trying to pull funds out of investments priced in yuan and speculators have been betting on further falls in the currency.
To stabilize the situation, China has been selling dollars and buying yuan.
China has been using other tactics, including curbing currency speculation and ordering offshore banks to retain their reserves of yuan.