China has spent nearly $32 billion in the reserves of foreign exchange to strengthen their renminbi during October, which is their biggest involvement in the two years by looking at Beijing’s nervousness related to the economy. On Wednesday, the release of data has eased the worries that the country has intended to make use of devaluation of the exchange rate as the weapon to tackle trade war held with the United States. But, it has also highlighted the problems faced by a central bank of China as it expects stability of their currency without draining out their reserves.
Many analysts believe that the authorities don’t want their currencies to get weaker beyond the Rmb7.0/dollar, which is considered as the psychological threshold by many. The onshore rate of renminbi closed to Rmb6.93/dollar this Wednesday. China’s central bank expects to maintain their forex reserves for more than $3 trillion, by leaving China’s People’s Bank with less power to protect currency during the end period of depreciation. The official forex reserves reduced to $3.053trillion at the October end from $3.08trillion a month prior to this, says PBoC on Wednesday.
The Chinese economist, Iris Pang said that the drop in October was less as compared to the one which happened in 2015 when the monthly declines were averaged at $70 billion over a period of six months. The forex reserves of China peaked under $4 trillion during mid-2014, while during the next 2.5 years it reduced by about $1 trillion to protect renminbi. The country has posted its current deficit of about $13 billion during the nine months period of 2018, by putting itself on pace as it has been a first whole tear deficit since the year 1993. Still, most of the analysts think that authorities want to accept s moderate depreciation of renminbi.