The RMB has resumed appreciating this week, after a long summer of stability against the falling US dollar. But even though the exchange rate shifted, China’s foreign exchange reserves data have not—showing no changes net of valuation adjustments throughout the year, and for most of the last four years. Reserves are stable despite the fact that the RMB has appreciated by only 3.9% since mid-March against the dollar and depreciated by 2.8% against a trade-weighted basket of currencies, while the dollar has weakened by over 10%.
There are good reasons to be skeptical of the surprising stability of China’s foreign exchange reserves data since early 2017, which show effectively no PBOC intervention over that period. This note details concerns about the improbable stability of China’s official FX reserves data and argues that the PBOC has intervened more—in both directions—over the past three years than the official data would imply. The PBOC has an incentive to declare less intervention in FX markets to project control over the currency’s movement.
