The dropping trend in China's foreign exchange reserve is a normal phenomenon, the country's central bank said Friday.
Zhou Xiaochuan, governor of the People's Bank of China, said at a press conference on the sidelines of the annual parliamentary NPC session.
He said the foreign exchange reserve had seen fast expansion since 2002, which China deems to be unnecessary.
Since the global financial crisis, capital flow from the developed countries implementing monetary easing policies to the emerging markets had surged significantly, Zhou said. The capital influx lacks stability and may flow back with the recovery of those developed economies, he added.
"Under such circumstances, we can see China's foreign exchange reserve decline from two aspects. On the one hand, we can find out whether it is because we didn't act enough in terms of capital flow or relevant policies were not implemented strictly enough, if yes, we can make improvements. On the other hand, dropping of China's foreign exchange reserve is a normal phenomenon, because we don't want that much foreign exchange reserve, so decline by a certain degree will do no harm," Zhou said.
"China still holds around three trillion U.S. dollars of foreign exchange reserve, it is the largest foreign exchange reserve stockpile in the world, much higher than the runner-up, so China sees no need in its policy-making to overreact, even if there are problems to be solved. Frankly speaking, there may be overreactions in some links, in that case we will straighten that out as soon as possible," the central bank governor said.
To further the point, vice governor Yi Gang said China's proper use of foreign exchange reserve and keeping basic stability in the RMB exchange rate has benefited the world.
"We followed market disciplines in the process of maintaining basic stability in the RMB exchange rate. The RMB exchange rate remains flexible, and such flexibility ensures the market signal to play its normal role," Yi said.
Pan Gongsheng, another vice governor, said external assets held by market entities have been growing, showing an active change in holder structure of China's external assets.
"Several years ago, external assets generated from official foreign exchange reserve accounted for 70 to 80 percent of the total. By the end of last year, external assets formed in official forex reserve and those held by market entities respectively accounted for 50 percent of the total," Pan said.
China's outstanding forex reserve stood at a little more than 3 trillion U.S. dollars by the end of last month, down from near 4 trillion dollars in 2014, PBOC data showed.
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