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China’s foreign-currency reserves edged just below $3 trillion in January, falling to the lowest since early 2011 after the yuan capped its steepest annual decline in two decades.

Key Points

Reserves fell $12.3 billion to $2.998 trillion, the People’s Bank of China said Tuesday

That compares with the $3.004 trillion estimate in a Bloomberg survey of economists

The central bank’s intervention in foreign-exchange markets drove the drop, as did seasonal factors such as high demand for other currencies during the week-long Lunar New Year holiday, the State Administration of Foreign Exchange said in a statement

Big Picture

Further erosion of the world’s largest stockpile may prompt policy makers again to tighten measures for controlling outflows and on companies transferring money to other countries. Authorities recently rolled out stricter requirements for citizens converting yuan into foreign currencies as the annual $50,000 foreign exchange quota for individuals reset Jan. 1.

Economist Takeaways

“With reserves dropping below the psychologically important threshold of $3 trillion, this will further ramp up pressure on Chinese policy makers to prevent the further draining of reserves," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. "The Chinese government and the PBOC are now facing a tremendous battle to stem further significant capital outflows while also trying to maintain confidence in the yuan."

"A combination of yuan strength, stricter capital controls and substantial valuation effects failed to arrest the slide," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report. "A seventh straight month of falling reserves, and a drop below the $3 trillion threshold, means no respite for China’s policy makers in their battle against capital outflows."

"The PBOC isn’t defending the $3 trillion threshold at all costs, as some thought," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc. in Singapore. "Reserves have showed signs of stabilization, and the momentum will continue."

"The breach of $3 trillion isn’t significant in the big picture," said Jason Daw, head of emerging-market currency strategy in Singapore at Societe Generale SA. "It was only slightly lower than consensus and inevitable given the trend over the past couple of years."

The Details

Holdings of the International Monetary Fund reserve currency known as Special Drawing Rights decreased to 2.21 trillion from 2.24 trillion in December

The onshore yuan recovered in January, rising 1 percent amid a broad dollar decline

January decline added to the $320 billion decrease in the holdings last year

— With assistance by Yinan Zhao, Kevin Hamlin, Tian Chen, and Sophie Caronello