A citizen counts the US dollars in Houma City, north China's Shanxi Province, Oct. 11, 2011. The Chinese currency renminbi, or the yuan, strengthened 103 basis points to a record high of 6.3483 against the US dollar on Tuesday, according to the China Foreign Exchange Trading system.Photo: Xinhua

 China’s foreign exchange reserves trimmed 0.2 percent to reach $3.21 trillion from December to January, data from the State Administration of Foreign Exchange (SAFE) said. 

Analysts said the slight drop was mainly caused by a strengthening US dollar, which led to the weakening of non-dollar assets in the short term, and the country’s forex reserves will likely stay above the psychological level of $3 trillion for the whole year. However, gold will probably make for a larger share of the reserve to hedge against currency fluctuations.

In the international financial market, new developments connected with coronavirus vaccines, monetary and fiscal policy changes in major economies resulted in a strengthening US dollar index and a decline in the prices of major economies’ financial assets, according to a statement on the website of SAFE. 

In terms of China’s forex reserve, the value of non-dollar currencies dropped after conversion to dollar-denominated terms, which -- combined with other changes in asset prices -- led to a decrease in forex reserves in January, the statement noted.

Dollar-denominated assets accounted for about 50-60 percent of China’s total forex reserve, according to analysts. 

“It is only a short-term fluctuation, and the amount of total nominal assets in the pool – regardless of which currencies they are counted in – remains stable,” Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology, told the Global Times on Sunday.

China’s foreign exchange market operated in a stable manner in January, and expectations and transactions also remained stable, the SAFE statement noted. 

Analysts predicted that China’s forex reserve will hover above $3 trillion in 2021.

The SAFE statement stressed that China’s favorable long-term economic foundation has not changed, and its international income and expenditure will continue to balance, which will help keep forex reserve stable.

Dong also expected that China to moderately increase the portion of gold reserve, as an alternative to hedge against external uncertainties and a wildly fluctuating US dollar. 

As of the end of January, China’s gold reserves stood at 1,948 tons, the same as the previous month, according to SAFE.

Global Times