Another day, another dollar. Or, in the case of the People’s Bank of China, about 1.7 billion of them.
In the three months to June, China added $153bn to its reserves, which now amount to $3,197bn.
As with growth, China’s premier has acknowledged that the pace of reserves accumulation must slow.
It has fallen from $197bn in the first quarter of the year. But it is hardly grinding to a halt. And if the renminbi continues to appreciate at the rate it has this year – it has climbed just 1.9 per cent against the dollar so far– then it is unlikely to anytime soon.
There are many benefits to having a $3,197bn reserves stockpile. However, for the PBoC, there are drawbacks too. Read more
Large Chinese lenders will need to keep a fifth of their deposits with the central bank from March 25, after the People’s Bank of China announced an increase in reserve requirements. Individual banks that are lending too much might be targeted with further specific measures. Small-medium banks are probably now required to hold 16.5 per cent of loans, though, as ever, this is unclear from the Bank’s statement.
Domestic inflation seems a much likelier explanation for the recent appreciation of the yuan than American pressure. Many commentators have referred to the Chinese “bowing to pressure” or otherwise implied that the authorities have – without apparent trigger – capitulated to Western pressure. A quick look at the timing suggests otherwise. China is in the middle of a tightening extravaganza, raising interest rates and reserve requirements to tackle inflation. A strengthening yuan can have exactly the same effect, by making imports cheaper. Timing is only circumstantial evidence, of course, but it is something. 
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