As of January 7, 2024, recent statistics reveal that China’s foreign exchange reserves totaled $32,024 billion at the end of December 2024, marking a decrease of $63.5 billion from the end of November, reflecting a decline of 1.94%. Over the previous year, the management and operation of China's foreign exchange reserves have undergone continuous improvement, with reserves remaining stable above the $3.2 trillion mark since the beginning of the yearThis significant reserve amount has played a stabilizing role in maintaining the macroeconomic stability of the nation, facilitating high-level openness to the outside world, and mitigating systemic financial risks, acting effectively as a protective buffer against economic turbulence.

Looking ahead to the new year, the National Foreign Exchange Management Work Conference set the tone for 2025 by emphasizing the importance of promoting high-quality development in the management of foreign exchange reserves

The authorities underline the need to ensure the safety, liquidity, and preservation of value of these assetsThe State Administration of Foreign Exchange (SAFE) points out that the Chinese economy is generally running smoothly and progressing steadily, and the solid push for high-quality development is conducive to keeping the scale of foreign exchange reserves stable.

Additionally, on the same day, updated official reserve asset data indicated that by the end of December 2024, China’s official gold reserves reached 73.29 million ounces, reflecting an increase of 330,000 ounces from the previous monthOver the course of 2024, the official gold reserves expanded by 1.42 million ounces, indicating a strategic buildup in precious metals amid global economic uncertainties.

The strengthening of the US dollar has broadly impacted asset prices globallyBy the end of December 2024, a decline in China’s foreign exchange reserves was recorded, attributed to fluctuations in the dollar's value influenced by various economic factors

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Analysis from SAFE highlighted that in December, amid shifting expectations regarding central bank monetary policies in major economies and macroeconomic data, the dollar index rose, leading to a general decline in global financial asset pricesFactors such as foreign exchange valuation adjustments alongside asset price dynamics contributed to the decreasing reserve figures for the month.

Despite the Federal Reserve's expected 25 basis point rate cut in December, Chairman Jerome Powell indicated a more cautious approach for future rate cutsThis tempered market expectations for further cuts, raising concerns about a potential rebound in US inflationConsequently, in December, the dollar index increased while yields on 10-year US Treasuries also rose, causing overall declines in global financial asset prices.

The dollar index saw a month-over-month rise of approximately 2.6% in December, against a backdrop of depreciation for major non-dollar currencies such as the Japanese yen, euro, and British pound

While the RMB depreciated against the dollar, it remained stable relative to a basket of currencies, with the CFETS RMB exchange rate index increasing by 1.76 percentage points since the beginning of the monthIn the bond market, yields on 10-year US and European debts both increased, and the value of US dollar-denominated hedged global bond indices saw a decline of 0.8%. Similarly, stock prices also fell, with key indices such as the S&P 500 and the Euro Stoxx 50 experiencing downturns.

As of January 6, 2025, the dollar index stood at 108.24, still reflecting a high levelAnalysts suggest that given market sentiments regarding expectations of future Fed rate cuts have significantly diminished, the dollar index may continue challenging past high levels, possibly hitting 110.

Looking further, there are various internal and external factors that could support the stability of foreign exchange reserves

Observers note that the overall stable operation of the Chinese economy, along with steady progress in high-quality development, bodes well for the maintenance of the reserve scale.

The Chief Economist at Minsheng Bank, Wen Bin, remarked that the recent rollout of a slew of policy measures has notably boosted macroeconomic conditions and capital markets, enhancing the attractiveness of RMB assets, which effectively supports foreign exchange reserves.

The Central Economic Work Conference has provided a comprehensive deployment for the economic tasks of 2025, explicitly outlining plans for a more proactive fiscal policy coupled with moderately accommodative monetary policyAs Wen Bin posits, China will continue to push for the implementation of both existing and new policy measures, establishing a solid foundation for maintaining overall balance in international payments.

Moreover, the underpinnings for the strong dollar are considered to be tenuous

Analysts from Tianfeng Securities suggest that the inherent contradictions among the goals of inflation control, deficit management, and economic growth imply that these policies cannot be executed simultaneouslyIf policies fail to materialize as expected, or if outcomes diverge substantially from projections, the existing strong dollar paradigm may undergo a necessary adjustment.

Others echo these sentiments, arguing that the market may be overly pessimistic regarding the Fed's path towards rate cutsEconomists suggest that there remains potential for two or three rate cut opportunities throughout 2025. They point out an observable fragility in the current American consumption and corporate sector dynamics, suggesting that the enduring high-interest environment is unsustainable, which could compel the Fed to increase the frequency of rate cuts moving forward.

Throughout 2024, China's official gold reserves were supplemented by an increase of 1.42 million ounces

Notably, in November, the People’s Bank of China resumed its gold purchases for the first time in six months, and this trend continued into DecemberBy December's end, the official gold reserves reached 73.29 million ounces, up by 330,000 ounces month-over-monthThe resilience of COMEX gold futures suggests stability in the commodity's pricing, as highlighted by the World Gold Council, which indicates a positive yet measured outlook for gold prices in 2025.

Analysts predict that factors such as heightened central bank demand could foster new cycles of gold accumulation on a global scale, driven by rising geopolitical uncertaintiesThe increasing trend of global central banks piling up gold remains a constant support for gold prices, reaffirming its high-value positioning within investment portfoliosExperts continue to emphasize the need for a more balanced structure of international reserves, advocating the case for increased gold accumulation by the Chinese central bank in future policy directions.