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China Announces it is No Longer in its Interest to Stockpile U.S. Foreign Reserves AKA the Petrodollar

“The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuanwrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.

China’s foreign-exchange reserves surged $166 billion in the third quarter to a record $3.66 trillion, more than triple those of any other country and bigger than the gross domestic product of Germany, Europe’s largest economy. The increase suggested money poured into the nation’s assets even as developing nations from Brazil to India saw an exit of capital because of concern the Federal Reserve will taper stimulus.

Yi, who is also head of the State Administration of Foreign Exchange, said in the speech that the yuan’s appreciation benefits more people in China than it hurts.

‘Less Interventionist’

His comments are “consistent with the plans to increase therenminbi’s flexibility so they become less interventionist,”Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong, said by phone today. The central bank may widen the yuan’s trading band in “the coming few months,” he added.

The yuan’s spot rate is allowed to diverge a maximum 1 percent on either side of a daily reference rate set by the People’s Bank of China. The trading range was doubled in April 2012, after being expanded from 0.3 percent in May 2007. The band could be widened to 2 percent, Hong Kong Apple Daily reported today, citing an interview with the Hong Kong Monetary Authority’s former chief executive Joseph Yam.

Capital inflows into China accelerated in October, official data suggest. Yuan positions at the nation’s financial institutions accumulated from foreign-exchange purchases, a gauge of capital flows, climbed 441.6 billion yuan ($72 billion), the most since January….”

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