Over the past decade China’s desire to diversify its foreign exchange reserves supported the Euro. Now, however, reserves worth 4 trillion. dollar perhaps beginning to work against the European single currency, writes Bloomberg.
In the first half of Beijing has spent 299 billion. Dollars from its reserves to maintain the exchange rate of the yuan. So they are compensated for sales of yuan for dollars from the private sector, which are accelerated amid the collapse of the capital markets and slowing economic growth. This is the longest period of decline in foreign exchange reserves of the People’s Bank since 1993. This perhaps marks the end of a long period of accumulation, in which the bank was buying euros as part of its efforts to reduce dependence on the dollar.
Large sales of dollars to support the Chinese currency can lead to imbalances in the reserves of the central bank. According to analysts at Credit Suisse Group in perspective the central bank may begin recovery of reserves from dollars and selling euros.
Currently, the euro is the second most-used reserve currency for central banks around the world, according to figures of the International Monetary Fund. “We run structural change which fueled market expectations for a lower rate of the euro against the dollar,” said Robin Brooks, chief currency strategist at Goldman Sachs Group.
In recent months, China tries to limit movements in the yuan, to encourage greater use its internationally and to limit capital flight. The stability of the yuan is an important argument that China wants IMF to include it in the official basket of reserve currencies.
New Trends
After China ended the yuan fixed against the dollar about a decade ago, the currency has appreciated by about 34%. In recent months, however, it seems the trend of appreciation is limited. Since March rate notes only minor deviations from level 6.2 yuan per dollar in June the average daily change is about 0.1%.
In turn, the euro has depreciated by 2.2% against the dollar since the beginning of the month, reaching its lowest rate since April. In March, the euro reached 1.045 dollars, which was the lowest level since early 2003. According to the average forecast of analysts surveyed by Bloomberg, the exchange rate of the euro will weaken to $ 1.05 by year-end. Experts from Goldman Sachs forecast a decline to 95 US cents per euro within the next 12 months and to 80 cents in 2017