China‘s FX reserves poised to drop below $3 trillion on yuan intervention

Feb 11, 2016, 07:30 am

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By Hong Soon-do, Beijing correspondent, AsiaToday - China's foreign-exchange reserves are poised to drop below $3 trillion as the country has been struggling to prevent the yuan from sliding further by selling its dollar holdings. Since there has been a fair chance that yuan could depreciate due to new attacks of some of foreign hedge funds who heavily bet on yuan devaluation, China has been running down its vast foreign-exchange reserves in an attempt to stabilize the yuan. China's foreign-exchange reserves once hit nearly $4 trillion, but that is now poised to drop below $3 trillion.

China's State Administration ofForeign Exchange was one expected to have $4 trillion of foreign exchangereserves however it is now in charge of foreign exchange reserves that plungeddeeply due to attacks of hedge funds./ Source from search engine Baidu

China had little problem with its currency and its foreign-exchange reserves by early 2015. However the Chinese economy began to show some strange signs following a set of growing predictions of global economic crisis. China's yuan began to depreciate while the country's foreign-exchange reserves began to shrank. In addition, hedge funds have been betting big on further falls in the currency since the second half of last year, making the situation more serious. In fact, the yuan has been facing heavy pressure to depreciate since then, and its value declined heavily as well. In response to hedge funds' attacks, China has been investing at least $300 billion of its reserves to stabilize the situation.

According to Beijing sources and recent Hong Kong media outlets including Ta Kung Pao on Wednesday, some big names in the hedge-fund industry including George Soros' Quantum Fund as well as Pershing Square Capital Management and Hayman Capital Management placed large bet on yuan depreciation.

Considering the current situation, it's highly likely that hedge funds will continue to mount attacks on yuan. It is also clear that the Chinese authorities would utilize its foreign-exchange reserves somehow as long as it doesn't want to devalue the currency. If this is the case, China's reserves may fall below the $ trillion mark. This seems why some Chinese economists say that it's more effective for China to take active measures such as introducing capital controls while allowing depreciation to a certain level. Clearly, it's quite difficult to say that China's economy is on the right track.

#China #foreign-exchange reserves #hedge fund 
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