According to data released by the State Administration of Foreign Exchange, as of the end of July 2020, my country’s foreign exchange reserves stood at US$3,154.4 billion, an increase of US$42.1 billion or 1.4% from the end of June, and achieved an increase for four consecutive months. China's gold reserves are 62.64 million ounces (approximately 1948.32 tons), which is the same as last month, and has been "holding the troops" for ten consecutive months. Industry insiders believe that factors such as exchange rate conversion and asset price changes are important reasons for the increase in the scale of foreign exchange reserves that month, and short-term foreign reserves are expected to maintain a steady increase.
Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said that in July, my country's foreign exchange market was operating smoothly and foreign exchange supply and demand were basically balanced. Major economies such as the United States and Europe have increased fiscal stimulus and maintained ultra-loose monetary policies. Non-US dollar currencies have generally strengthened relative to the US dollar in the international financial market, and asset prices in major countries have generally risen. Under the combined effect of exchange rate conversion and asset price changes, the scale of foreign exchange reserves increased during the month.
Liu Jian, a senior researcher at the Bank of Communications Financial Research Center, believes that exchange rate conversion factors have increased foreign reserves by approximately US$35 billion. Since April, affected by factors such as the continued worsening of the epidemic in the United States, the gradual improvement in the prevention and control of the epidemic in the euro area, and the approval of the EU’s 750 billion euro financial rescue plan, the US dollar index has fallen from 100.7 in early April to 92.5 in the near future, with a single month drop in July 4 %, the largest single-month decline since 2010. Affected by this, the major non-US currencies have appreciated in varying degrees against the U.S. dollar, and the euro, the British pound, and the Japanese yen have appreciated by 4.8%, 5.5%, and 2%, respectively, against the U.S. dollar. A rough estimate is that exchange rate conversion factors may increase foreign reserves by approximately US$35 billion.
Cross-border capital flows have also contributed to the growth of foreign exchange reserves. The domestic economic situation has gradually improved recently, and RMB assets have been favored by international investors. In July, the net inflow of northbound funds was 10.4 billion yuan; at the end of July, the face value of RMB bonds held by overseas institutions reached 2672.4 billion yuan, an increase of 164.9 billion yuan from the previous month.
"Looking forward, China has entered a stage of high-quality development, with strong economic resilience, and a new development pattern with domestic and international cycles as the mainstay and mutual promotion of domestic and international dual cycles will be formed at an accelerated rate, which will continue to provide support for the overall stability of foreign exchange reserves." Wang Chunying said.
Liu Jian predicts that foreign reserves are expected to increase steadily in the short term. Since August, the US dollar index has continued to fluctuate and weaken, and exchange rate valuation factors may still have a certain positive contribution to foreign reserves. From a technical perspective, the US dollar index may rebound slightly, and it is expected that the contribution of exchange rate valuation factors to external reserves may slightly weaken. Under the severe and complex situation of the overseas epidemic and the global economic situation, my country has achieved significant strategic results in coordinating epidemic prevention and control and resuming work and production. Cross-border funds are still expected to maintain a net inflow. It is expected that foreign reserves are expected to increase steadily in the short term. (Xiang Jiaying)