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People's Bank of China Weakens Yuan Against Dollar by 0.87% Monday

Foreign currency reserves of China declined to near six-year low in December but remained above the critical level of 3 trillion United States dollars, against the attempts of the authorities to stabilize the national currency.

The People's Bank of China said Saturday that the world's largest stockpile of foreign currency plunged by $41.08 billion in December to $3.011 trillion, the lowest level since March 2011.

China's foreign currency holdings remained above US$3 trillion last month, even as the yuan capped its steepest annual decline in more than two decades.

It is perhaps curious if the PBOC, wielding its authority as the country's financial regulator, is, in fact, turning the screws on major bitcoin exchanges to control the outflow of Chinese yuan.

"For 2016 as a whole we estimate total capital outflows to have been around $710 billion", Capital Economics' China economist Chang Liu told Reuters in an email.

The yuan is now trading at its lowest level in eight years against the dollar after dropping about 7 percent in the space of a year, as China sells greenbacks to support its currency.




Capital Economics estimated net outflows in November and December alone were $76 billion and $66 billion, respectively.

While upcoming economic data from China are expected to show it entered 2017 on a solid footing, the fact that it has come on the back of renewed aggressive government spending has raised concerns of an eventual slowdown and continued capital flight.

According to Bloomberg, the decline of foreign exchange reserves in December was mainly because the PBOC supplied funds to maintain balance in the foreign exchange market.

The People's Bank of China is hoping to prop up the yuan in the face of a rising U.S. dollar.

Ren Zeping, chief economist of Founder Securities, said the warming up of the domestic economy and weakening of the dollar index help create an environment for stabilizing the yuan.

While the yuan has soared this week as China bears down on the market, a Reuters poll showed it is expected to slide at least 4 percent this year, largely as expectations of interest rate hikes in the United States drive the dollar higher.

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