Return to the $3.2 trillion mark after four years!

More than four years later, it's back to US $3.2 trillion!
In 2020, the official foreign exchange reserve has achieved a “good result” of an increase of 108.6 billion US dollars.
On January 7, the latest data released by the State Administration of foreign exchange showed that by the end of December 2020, the scale of China’s foreign exchange reserves was 3216.5 billion US dollars, up 38 billion US dollars or 1.2% from the end of November.
Looking back at the performance of foreign exchange reserves in the past year from the monthly changes, we can see that in 2020, the foreign exchange reserves dropped in four months and rose in eight months. The scale of foreign exchange reserves in the whole year increased by 108.6 billion US dollars, reflecting that China’s foreign exchange reserves have a relatively solid and stable foundation. On January 4, the State Administration of foreign exchange held a national video conference on foreign exchange management in 2021, which pointed out that the level of foreign exchange reserve management improved steadily last year, and the scale of foreign exchange reserve was stable at about US $3.1 trillion.
Valuation factors push up the scale of foreign reserves
Foreign exchange reserves are back at the $3.2 trillion mark, a new high since May 2016. Wang Chunying, deputy director of the State Administration of foreign exchange and spokesman, explained that the overall operation of China’s foreign exchange market in December was stable and the market transactions were rational and orderly. Novel coronavirus pneumonia vaccine, international monetary market and fiscal policy have been the main factors influencing the international financial market. The US dollar index has declined, and the price of non US dollar currencies and major countries’ assets has risen. Foreign exchange reserves are denominated in US dollars. The amount of foreign exchange reserves increases when non US dollar currencies are converted into US dollars. Combined with the rise of asset prices and other factors, the scale of foreign exchange reserves increases in the current month.
Wen bin, chief researcher of Minsheng Bank, told reporters that from the perspective of major exchange rate changes, the US dollar exchange rate index fell 2.1% to 89.9 in December; non US dollar currencies rose against the US dollar as a whole; from the perspective of asset price changes, the asset prices of major countries rose as a whole. Considering the effects of exchange rate translation and asset price changes, the valuation of foreign exchange reserves increased this month.
At the same time, real trade and cross-border capital flows also contributed to the growth of foreign exchange reserves this month. Wen Bin said that major overseas economies are showing a recovery trend as a whole, and the recovery of overseas economic prosperity will help to drive the increase of foreign demand and form a positive effect on China’s exports. The overall capital market is good, and cross-border funds are flowing in. In December last year, the net inflow of northward funds was 57.24 billion yuan. Trade and cross-border capital inflows are expected to contribute to the size of foreign exchange reserves.
Strengthen the monitoring of foreign exchange situation, foreign reserves are expected to remain stable
Looking forward to the future situation of official foreign exchange reserves, the mainstream view is that China’s foreign exchange reserves will continue to remain stable. Wang Chunying said that looking forward to the future, the world economic situation is complex and severe, the derivative risks caused by the impact of the epidemic can not be ignored, and there are still many uncertain factors in the international financial market. However, China’s foreign exchange market has the conditions to continue to maintain a stable and balanced operation, and the scale of foreign exchange reserves will be generally stable.
Wen bin also said that the scale of China’s foreign exchange reserves will remain stable. On the one hand, China’s economic recovery situation continues to improve. In 2020, China’s economy will achieve positive growth and stay ahead of the rest of the world, laying a solid foundation for the stable scale of foreign exchange reserves.
On the other hand, China’s macro-control, foreign exchange management and other policies size up the situation. Since 2020, China’s macro-control policies will continue to play a positive role by fading out the use of “counter cyclical adjustment factor”, adjusting the foreign exchange risk reserve ratio of forward foreign exchange sales, macro Prudential parameters of cross-border financing, and macro Prudential adjustment coefficient of domestic enterprises’ overseas lending To promote the two-way fluctuation of RMB exchange rate at a balanced and reasonable level, maintain the basic balance of cross-border capital flow and the smooth operation of foreign exchange market, and provide guarantee for the stability of foreign exchange reserve scale.
On January 7, the central bank and the State Administration of Foreign Exchange announced that they had decided to reduce the macro Prudential adjustment parameters of cross-border financing of enterprises from 1.25 to 1. This notice shall be implemented from the date of promulgation. If the enterprise’s cross-border financing risk weighted balance exceeds the upper limit due to this parameter adjustment, the cross-border financing contract before the issuance of this notice can be held to maturity.
It is worth noting that the above adjustment was made after the macro Prudential adjustment parameter of cross-border financing of financial institutions was lowered from 1.25 to 1 in December last year, so as to guide enterprises to adjust the structure of foreign exchange assets and liabilities in a market-oriented way. Guan Tao, global chief economist of BOCI Securities, told the securities times earlier that lowering the macro Prudential adjustment parameters of cross-border financing is a counter cyclical adjustment and also a temporary policy exit to deal with the epidemic situation. The RMB exchange rate has been continuously appreciating for several months. Through the counter cyclical adjustment of macro Prudential coefficient, it releases signals, promotes the differentiation of market expectations, and promotes the balance of foreign exchange payments.
Wen bin reminded that the current international epidemic situation is still severe, and domestic epidemic prevention and control should not be taken lightly. There are still large fluctuations in the international financial market. There are still many unstable and uncertain factors in the economic development environment. Enterprises should establish the concept of risk neutrality and do a good job in exchange rate risk management.
The State Administration of foreign exchange pointed out at a meeting held on the 4th that it will guard against the risk of abnormal cross-border capital flow this year. We should strengthen the monitoring and evaluation of the foreign exchange situation, pay close attention to the epidemic situation and other external impacts, guide financial institutions and enterprises to adhere to the risk neutral principle, crack down on foreign exchange speculation, strengthen market expectation management and macro Prudential Management, and avoid disorderly fluctuations in the foreign exchange market.
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