(Yicai) May 8 — China’s foreign exchange reserves climbed 1.3 percent in April from the month before, with gold reserves increasing for the sixth consecutive month, according to the latest official data.
China’s forex holdings expanded by USD41 billion to USD3.2817 trillion as of April 30 from March 31, mainly because of the combined effects of currency translation and asset price changes, the State Administration of Foreign Exchange announced yesterday.
The US dollar index dropped, and prices of some global financial assets fell while those of others rose last month, affected by macro policies of major economies, economic growth expectations, and other factors, according to the SAFE.
In terms of currency, the US dollar index (DXY) declined 4.6 percent, while non-US dollar indexes generally appreciated. In terms of assets, the Barclays Global Aggregate Total Return Index (USD Hedged) increased 1 percent, while the S&P 500 Index fell by 0.8 percent.
The main factor behind the forex reserves jump last month was the sharp drop in the US dollar index, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.
However, after the US introduced its ‘reciprocal tariff’ policy in April, the global capital market fluctuated violently, and major stock indexes mostly declined, which had a slight downward impact on the valuation of China’s forex reserve assets, Wang noted.
The decline in the US dollar index and global financial market will form a hedging effect in the short term, with China’s forex reserves expected to remain stable, Wang pointed out. This will provide a solid foundation for keeping the Chinese yuan exchange rate at a reasonable and balanced level, he added.
Gold Reserves
The People’s Bank of China increased its holdings of gold by 70,000 ounces to 73.77 million ounces last month, SAFE data also showed.
From November to April, the PBOC added 970,000 ounces of the precious metal, while its reserves had been steady for the six months prior to that.
Wang attributed the jump in gold reserves to new global political and economic changes after the new US government took office and the fact that international gold prices are more likely to continue rising than fall. The unique hedging function of gold could have also played a role, he added.
The proportion of gold reserves to China’s international reserves is relatively low. As of Dec. 31, gold accounted for only 5.5 percent of China’s official international reserve assets, much lower than the global average of around 15 percent.
The central bank’s increase in gold reserves can enhance China’s sovereign currency credit and create favorable conditions for promoting the internationalization of the Chinese yuan, Wang noted. Therefore, the PBOC will likely keep expanding its gold reserves in the future.
Editor: Futura Costaglione
