Beijing's dilemma over renminbi convertibility

Singapore

CHINESE authorities and official media have been on a public relations offensive to dispel concerns that the country's foreign exchange reserves have fallen below a 'psychological barrier'. In January, China's reserves fell below US$3 trillion for the first time in seven years. This represents a 25 per cent drop since 2014. On the positive side, January's decline of US$12 billion was far below consensus forecasts, and reserve levels are showing signs of stabilisation.

Zhou Xiaochuan, governor of the People's Bank of China, has previously stated that China's reserves were too large and "exceeded the reasonable level". Although Beijing has taken measures to limit capital outflows, it hasn't been defending the US$3 trillion threshold at all costs. Nonetheless, further erosion of the world's largest reserve stockpile may prompt policymakers to intensify such measures, and raises concern over further financial reform.