China’s central bank saw its yuan funds outstanding for foreign exchange drop 227.9 billion yuan ($30.06 billion) to 23.98 trillion yuan in February, data showed on March 15.
The fall narrowed from the 644.5 billion drop in January and a record plunge of 708.2 billion yuan in December. Through 2015, the funds only rose in January and October.
As the Chinese currency is not freely convertible under the capital account, the central bank has to purchase foreign currency generated by China’s trade surplus and foreign investment in the country by commercial banks, adding funds to the money market.
Therefore, such funds are an important indicator for foreign capital flow in and out of China as well as domestic yuan liquidity.
Concerns about capital outflows have been on the rise as the economy slows and the Chinese currency has headed south since China revamped the foreign exchange mechanism last year.
However, authorities have repeatedly said there is no basis for continued weakness of the currency as the country’s economic fundamentals remain sound. They also cited China’s current account surplus and foreign exchange reserves as solid support for the balance of international payments.
During a press conference on the sidelines of the country’s annual parliamentary session on March 12, China’s central bank governor Zhou Xiaochuan said the yuan has started to return to its normal and reasonable level after volatility.