By Valentin Schmid, Epoch Times | October 7, 2015
Last Updated: October 7, 2015 11:04 am
Treasury Secretary Jacob Lew arrives on Capitol Hill in Washington, Wednesday, June 17, 2015. (AP Photo/Andrew Harnik)
First the good news. China only sold only $43 billion worth of foreign exchange reserves, most of which U.S. Treasurys, in September.
This number is far lower than the $94 billion it sold in August, so it seems the country managed to stem the bleedingwhich reduced reserves of $4 trillion (August 2014) to $3.51 trillion in September of 2015.
Fewer sales by China are also beneficial because they reduce the pressure on interest rates here in the United States.
Maybe some of the measures to clamp down on money exchanges andoverseas cash withdrawals have shown an effect.
“The FX outflow situation moderated in September amid clearer policy signals to support the currency and … restrictions to slow outflow,” Goldman Sachs writes in a note.
The bad news, however, analysts thinkthis number is just the beginning and will eventually be revised higher as new data is released.
China’s foreign exchange reserves over the past year (Bloomberg)
“As the People’s Bank of China also intervened [in the derivative] market in the past month, the foreign reserves will likely plunge again when these forward contracts mature,” Commerzbank’s senior economist in Asia Zhou Hao told Reuters.
Goldman Sachs prefers to looks at bank settlement data by the State Administration of Foreign Exchange, which includes derivative transactions but is not limited to official foreign exchange reserves. This data showed outflows of $178 billion for August, double the number reported by the People’s Bank of China.
Epoch Times has previously reported that the foreign exchange outflows are systemic but China thinks it can extend and pretend the situation is going to get better soon.
“I think their strategy to bring that about is to stabilize the spot rate, intervene in the offshore and the onshore spot markets and hope that the economic data portrays a recovering economy and confidence comes back a bit more,” Tim Condon, the Singapore-based head of research for Asia at ING Bank told Reuters.
http://www.theepochtimes.com/n3/1873444-china-dumps-another-45b-of-reserves-in-september-actual-outflows-could-be-far-higher/
