Offshore Yuan Declines as China Foreign-Exchange Reserves Drop

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The offshore yuan erased its gains after China reported a record decline in its foreign-exchange reserves amid central bank efforts to prop up the currency.

The stockpile shrank by $93.9 billion in August to $3.56 trillion, according to official data released Monday, compared with a Bloomberg survey’s median forecast of $3.58 trillion. The drop shows the central bank “intervened intensively” to keep the yuan stable amid capital outflows after a devaluation on Aug. 11, according to Commerzbank AG.

The yuan traded in Hong Kong, which is free of the mainland’s capital controls, declined 0.32 percent to 6.4874 a dollar as of 5:39 p.m. local time, data compiled by Bloomberg show. It was trading 0.08 percent stronger before the reserves figures were released.

“The decline is significant, and it’s slightly deeper than we thought,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “The level of the reserves remains very high and larger than what China needs, so there’s no threat to currency stability.”

The exchange rate is close to stabilizing and there’s no basis for long-term depreciation, People’s Bank of China Governor Zhou Xiaochuan said in a statement Saturday following a meeting of Group of 20 central bankers and finance ministers in Ankara. 

The G-20 nations pledged to avoid tit-for-tat currency devaluations, while the U.S. Treasury chief separately said that China should avoid persistent exchange-rate misalignments. The biggest drop in China’s currency in 21 years last month had spurred concern that a weaker yuan will hurt countries exporting to China.

The onshore yuan, whose moves are limited to 2 percent on either side of a daily PBOC fixing, closed 0.16 percent weaker at 6.3659 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. The monetary authority strengthened its reference rate by 0.06 percent to 6.3584.

— With assistance by Tian Chen

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