Fall in forex reserves not a cause for concern

In January China's foreign exchange reserves dropped to $2.9982 trillion, the first decline below $3 trillion in the past five years. According to People's Bank of China, the country's central bank, the main reason for the decline is the release of foreign exchange funds to help maintain the balance between supply and demand. In addition, Chinese residents' travel and consumption overseas, as well as enterprises' debt repayment and settlement also increased during Spring Festival, which is the seasonal cause of the decline in the foreign exchange reserves.

I agree with the mainstream domestic view that we should not be excessively worried about the decline, because China's foreign exchange reserves are huge compared with those held by other countries. It is generally assumed that a country's minimum foreign exchange reserves should be enough to cover three months' imports and all short-term foreign debts, and that China's about $3 trillion foreign exchange reserves are more than serve the purpose.

But for an emerging economy like China, its foreign exchange reserves should be much more than the minimum amount, so that it can maintain the stability of the yuan's exchange rate, support Chinese enterprises' "go global" strategy, guarantee financial security and microeconomic stability, and provide foreign aid.