China’s foreign exchange reserves, the world’s largest since 2006, could drop to $3.5 trillion to $4 trillion or lower at the end of 2015, according to the majority of economists polled in a Bloomberg survey. Eleven said the $3.99 trillion posted on June 30 was the peak.
As it moves towards a more market-driven economy, China has stopped regular foreign-currency purchases and is freeing up restrictions on the flow of money in and out of the country. Fewer foreign-asset purchases lowers the need to print and then lock away the local currency, giving more room to spur an economy that grew last year at the slowest pace since 1990, according to economists’ projections. Xi Junyang, a finance professor at Shanghai University of Finance and Economics said “For China’s central bank, it means the single most important source of liquidity is gone. It means the central bank has to find other sources to inject liquidity -- it has to cut the required reserves, it has to create more open-market tools.”
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