China reserves hover above $3 trillion on govt support

Bloomberg

China’s foreign currency holdings remained above $3 trillion in December even as the yuan capped its steepest annual decline in more than two decades.
Reserves fell $41.08 billion to $3.01 trillion, the People’s Bank of China (PBOC) said in a statement Saturday. That matched a $3.01 trillion estimate in a Bloomberg survey of economists.
China may take measures to keep its foreign-currency stockpile from slipping too far below the key $3 trillion mark to avoid hurting investor confidence and spurring further declines in the yuan, according to economists at major banks. Policy makers have recently rolled out extra requirements for citizens converting yuan into other currencies after the annual $50,000 quota for individuals reset 1 January.
“China’s government is well positioned to control outflows more effectively if it wants to, though it may not want to be seen as reversing China’s ‘opening’ strategy,” Wang Tao, head of China economic research at UBS Group AG in Hong Kong, wrote in a recent note. “In the long run, it may not have much choice if FX reserves fall more sharply on the back of intensifying capital outflow pressures.”
The decline of foreign exchange reserves in December was mainly because the central bank supplied funds to maintain balance in the foreign exchange market and the depreciation of non-US dollar currencies, the State Administration of Foreign Exchange said in a separate statement on Saturday. For the full year of 2016, the SAFE said the central bank’s effort to stabilize the yuan was the key reason for the drop in reserves.
The yuan fell 0.9% last month, capping a 6.5% drop over the year.
The nation’s gold reserves stood at $67.9 billion by the end of December, compared with $69.8 billion a month earlier.