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CHINA GDP CRISES: China's foreign exchange exhausted when $ 4 trillion disappeared

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China's foreign exchange reserves are depleting rapidly.
China's foreign currency reserves worth $ 4 trillion have shrunk to a fifth since the summer and more than a third of them have been used in the past three months.
For a long time, China has been one of the savior of the financial world when the world market was unstable. More than a year ago, the country's foreign exchange reserves amounted to $ 4 trillion. For now, however, China's growth rate has slowed and signs of a decline in national power appear.

As migration inflows increase, Beijing uses foreign currency to prop up the local currency. The country's foreign currency reserves have shrunk by a fifth since the summer. According to The New York Times.
At the end of January, China's foreign currency reserve was $ 3,230 billion.
With less foreign exchange reserves, Beijing's maneuverability will be limited, creating a shock to the economy. This situation weakens the ability to control domestic currency prices.

The decline in foreign currency reserves could also affect China's efforts to enhance the international image of China due to its inability to invest in high-end projects in developing countries.

The depletion of foreign currency reserves is one of the factors that undermines the confidence of global investors, due to the possible slippage effects on China's financial system. Some are betting that Beijing may have to let the yuan devalue instead of continuing to withdraw its reserves.

Officials in this country are trying to control the situation. In a rare interview published by Cai Xin, a Chinese magazine, Zhou Xiao Chuan, Governor of the Central Bank of China, said: "We have the largest foreign exchange reserves in the world. And we don't allow speculative forces to dominate sentiment markets. "

Foreign currency reserves are part of the monetary management process.

During the Great Chinese Years, the yuan could appreciate against the dollar, euro and yen. However, Beijing tightly controlled the price of the local currency, bought back most of the foreign currency flowing into the country and put it into a reserve fund. This move made the US and EU angry. They accuse China of manipulating its currency to give its exports an advantage and increase competitiveness abroad.

Currently, the yuan is facing the problem of devaluation. Beijing is withdrawing its foreign reserves to counter the price for the currency. However, many lawmakers and presidential candidates accuse China of continuing to weaken its currency. The reserves of this world's most populous nation are still quite large, double that of Japan - the country with the second largest foreign currency reserves in the world.

More and more Chinese companies and families are investing money overseas, according to the head of China's central bank. Just in the last few months, large inflows of capital have confused the government.

Beijing has taken steps to prevent this. Last winter, the country's officials demanded cooperation from leaders of underground banks - banks that are converting billions of yuan into dollars and euros. They make it harder for people to use their local currency to buy insurance in dollars.

In addition, Beijing's regulators suspended operations in US dollar-denominated funds.
In addition, the government has instructed bank branches in Hong Kong to limit RMB lending, making the process more difficult for investors and traders.

"We received a notice from Beijing in the early days of January asking to tighten the approval of yuan loans," said a Chinese banker in Hong Kong who did not name.

The reserve deficit is also causing other problems and the government has taken steps to resolve it.

One move that can hold foreign reserves is based on long-term commitments. Currently, the central bank of China requires some foreign currency managers to commit to an annual yield of 26% or their response will be reduced, said a China foreign exchange reserve expert.
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