China forex reserves hit $1.76 trln


China’s stockpile of foreign exchange reserves, already the largest in the world, increased a record $74.46 billion in April to $1.75666 trillion, a source familiar with the data said on Monday.

The leap surpassed the previous monthly record of $61.6 billion set in January. It was more than three times greater than the $24.3 billion that flowed into China in April from the trade surplus and foreign direct investment -- a strong indication for many economists that speculative capital is still pouring into the country. The source declined to be identified because he is not allowed to speak officially to the media. China’s official foreign exchange reserves have now risen $228.5 billion in the first four months of the year compared with $461.9 billion in all of 2007.

April’s surge -- almost half the Q1 increase of $154 billion -- occurred even though the yuan’s pace of appreciation slowed to a crawl last month, reducing the currency’s short-term attraction to hot-money investors. Economic policy makers at the highest reaches of the Chinese government have met periodically to examine the issue of hot money inflows, which complicate the People’s Bank of China’s (PBOC) task of managing the money supply. The PBOC has to buy most of the dollars that flow into China in order to hold down the yuan’s exchange rate. The central bank then has to sterilise the impact on the money supply by mopping up the domestic currency it creates in the process.

Senior officials reached no firm conclusion at their most recent meeting, agreeing only to keep monitoring the problem, a second source said. Reserves in April grew by more than the combined inflows from China’s trade surplus and FDI for the fourth month in a row. But not all economists pin the blame on speculative inflows. Some say most of the sustained increase can be explained by valuation changes affecting non-dollar holdings, a growing stream of income earned on the reserves stockpile and an explosion of onshore dollar lending.

However, the volume of dollar loans dropped sharply in April, the central bank’s monthly money supply figures showed. The PBOC publishes the reserves data every quarter. The next figures are due in July. (Reuters)

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