The yuan hit 16-year lows against the dollar, pressured by a series of factors that had a full impact on the world’s second largest economy. This affects local reserves since they are largely composed of the Chinese currency, beyond the US currency.
But let’s see first what happened to the yuan. The Chinese currency suffered its worst decline against the dollar in 16 years due to a fall in the real estate sector, which added to the weakness of local consumption and the contraction of credit. Thus, the yuan fell to 7.3299 units per dollar, its lowest level since December 2007.
But, Does this impact the federal reserves of the Central Bank? the Economist Carmilo Tircornia from C&T economic advisors responds “yes, the yuan part will be worth less measured in dollars”. In fact, since the Ecolatina consultancy They have already measured the loss in dollars that affects the BCRA.
“The devaluation of the yuan against the dollar in the last month reaches almost 2%, an effect that generates a decrease in Gross International Reserves of nearly US$340 million”he assured this medium Santiago Monoukianhead of Research at Ecolatina and expanded: “The 130 billion yuan adds up to just over $17.7 billion.”
For his part, Leandro Ziccarellifinancial analyst and author of the FMIpodcast, told Ambit that the devaluation of the yuan “has an accounting impact because the holding of yuan decreases when you measure it in dollars” but that it has a beneficial side: “It’s good because we are not borrowing in yuan via swap, that debt becomes cheaper.”
As to whether this situation will be momentary, he responded no.“It will continue due to the differential in the monetary policy of the United States, which is tough, versus China, where it is soft”hill.
Reservations: how they arrive in September
According to a report by the consulting firm GCL, Gross Reserves were US$27,818 million as of August 31. “Through the first 8 months of the year, the stock of gross reserves accumulates a drop of US$17,000 million”assured the analysis.
In this regard, they highlight that “the impact of droughtwhich was built on a year that had more foreign currency commitments (with IMF and private creditors), explains the deterioration.” “Today, reserves represent the equivalent of 4 months of importand permanently impose new adjustments,” they added.
“The fiscal and real devaluation of the last month and the sixth version of the Agro Dollar (allowing the liquidation of 25% of the amount exported to the MEP dollar) go in that direction, but they are hardly sufficient. As it is, We do not believe that the import tap will be released in the short term“, they closed.
Source: Ambito
