The State Administration of Foreign Exchange has released the latest situation of our country's foreign exchange reserves, and people may sensitively find that our foreign exchange reserves have shrunk.

We also know that, especially after joining the WTO, our trade surplus is large, and we earn more money from foreigners than we spend, so we have accumulated increasingly substantial foreign exchange reserves.

The data released by the customs yesterday morning shows that we still maintain a surplus, but why has the foreign exchange reserve decreased?

01, Foreign Exchange Reserves

The latest data shows that the foreign exchange reserves are now 30549 billion US dollars, which is a significant decline compared to last month, with a decrease of 492 billion US dollars compared to the previous month.

Does this decline indicate a capital outflow?

Not necessarily!

Our current foreign exchange reserves are calculated up to the end of August. From mid-August to the end of August, the US dollar appreciated, the renminbi depreciated, and other currencies depreciated. The depreciation of global currencies in this half month actually had a significant impact on our foreign exchange reserves.

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Why does the depreciation of other currencies have an impact?

We should think about it this way: when we say our foreign exchange reserves are 3 trillion US dollars, it does not mean that all of it is in US dollar assets. There are also assets in other currencies, such as the euro, yen, and other currencies.However, when we calculate, we need to convert all of it into US dollars. It is during this conversion process that a "loss" occurs.

For example, some of our assets are in Europe, including some European bonds or stocks. These assets were originally purchased in euros, but now we need to convert them into US dollars. Coincidentally, the euro has depreciated quite a bit during this period. As everyone knows, it has already fallen below 1, and even below 0.99. Under such circumstances, 1,000 euros could originally be converted into 1,140 US dollars (the exchange rate at the beginning of the year), but now it can only be converted into 990 US dollars. So there has been a significant reduction here.

I roughly calculated that the foreign exchange reserves decreased by 1.5% this month, and a considerable part of it was affected by the exchange rate.

02. US Treasury Bonds Decline

Another point to note is that a significant portion of our foreign exchange reserves are US bonds, and now, the price of US bonds has fallen.

According to the information released by the US Department of the Treasury, by June, we still held more than $960 billion in US bonds, accounting for about 1/3 of the foreign exchange reserves.

Of course, this data is from June, and it is possible that we continued to sell US bonds in July and August. But no matter how much we sell, the amount held is still very large.

The price of the US bonds we currently hold is falling, and it has been falling continuously, causing a certain loss.

We see that the yield on US bonds has risen, which actually indicates that the price is falling, and the foreign exchange reserves naturally shrink. This is also a reason to pay attention to.

Looking at the recent half year or even a year, although we have maintained a certain trade surplus, our foreign exchange reserves have not increased significantly, which is due to the decline in the price of US bonds.03, Increase Gold Holdings

Additionally, it is worth noting that the gold reserves announced by the State Administration of Foreign Exchange have remained unchanged since 2019 to the present.

However, there is no need for concern regarding this matter. It is merely the central bank's reserves that have not changed. Our country has been continuously purchasing gold under the guise of other institutions, so in reality, our gold reserves have been steadily increasing.

Gold serves as a stabilizer, while U.S. Treasury bonds have become a risk factor.

In the future, it is correct to buy more gold and sell more U.S. Treasury bonds.