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BEIJING—China’s foreign-exchange reserves saw its biggest monthly drop in October in nearly two years, hit by a strong U.S. dollar that hurt the value of other holdings and likely prompted government intervention to shore up the yuan.
October’s decrease of $33.93 billion was the largest since December 2016 when Beijing was battling capital flight and burned through $1 trillion to defend the yuan.
Though China isn’t experiencing that kind of pressure, October’s was the third consecutive monthly decline and was steeper than September’s $22.70 billion drop, according to data released by the central bank Wednesday. After October’s decrease, the foreign-exchange hoard, the world’s largest, totaled $3.053 trillion, according to the data.
The State Administration of Foreign Exchange, which manages the reserves, attributed the monthly decline to the impact a stronger U.S. dollar had on other assets. The reserves also hold assets in euro, yen and other currencies, many of which have weakened as the dollar has marched higher this year.
While economists said that valuation effect likely accounted for most of the change, a portion of the decline likely came from Beijing selling off reserves to defend the yuan.
The yuan, also known as the renminbi, has been slipping steadily against the dollar since April. Last month it dropped 1.3%, according to local data provider Wind, bringing the currency close to seven yuan to the dollar, a threshold it hasn’t crossed in a decade.
Xiaowen Jin, an economist at Citigroup, estimated that the impact of the stronger dollar against other currencies should have shaved the reserves by about $20 billion in October. Chang Liu, an economist with Capital Economics estimates that the central bank may have sold around $14 billion worth of foreign exchange in October, below the $17 billion sold in September.
China’s regulators have in recent months tightened controls on capital moving offshore, by restricting large foreign-currency purchases and remittances by business and individuals. Last month, the foreign-exchange administration imposed more than $30 million in fines for violations that include individuals skirting controls to buy property overseas and banks exceeding limits on selling foreign exchange to their clients.
Year to date, the yuan has dropped 6.2% against the dollar. Many economists expect the People’s Bank of China to keep the yuan from breaching the seven-to-the-dollar threshold and preventing the kind of huge selloff and capital outflows that followed a surprise devaluation of the yuan in August 2015.
—Grace Zhu and Liyan Qi
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