The country’s foreign exchange reserves increased by US$110.3 billion over the year, and official gold holdings rose by 7.23 million ounces (approximately 205 tons)—the “report card” for China’s foreign exchange reserves in 2023 has been released.
　　On January 7, the State Administration of Foreign Exchange released data showing that as of the end of December 2023, China’s foreign exchange reserves stood at 3.238 trillion U.S. dollars, an increase of 66.2 billion U.S. dollars from the end of November, representing a rise of 2.1%.
　　Meanwhile, the "gold rush" continues to sweep across central banks worldwide. Data shows that as of the end of December 2023, China's central bank held gold reserves totaling 71.87 million ounces, an increase of 290,000 ounces from the previous month. This marks the 14th consecutive month of growth in China's central bank's gold reserves.
　　The size of China's foreign exchange reserves
　　Back above the $3.2 trillion mark
　　In December 2023, after achieving two consecutive months of growth, China’s foreign exchange reserves rebounded above the $3.2 trillion mark, reaching their highest level within 2023.
　　This was primarily driven by the positive “valuation effect.” Guan Tao, Global Chief Economist at BOC Securities, told reporters that the significant rebound in China’s foreign exchange reserves for the month was largely attributable to expectations of a shift in the Federal Reserve’s monetary policy and the simultaneous rise in global stock, bond, and currency markets. The positive valuation effect—triggered by the revaluation of exchange rates and asset prices—boosted China’s foreign exchange reserves.
　　Looking back to December last year, the U.S. dollar index declined, while global financial asset prices generally rose. In terms of currencies, the U.S. dollar exchange rate index fell by 2.1% to 101.3, and assets denominated in non-U.S. dollar currencies appreciated overall when converted into U.S. dollars. As for asset prices, the U.S.-dollar-denominated hedged global bond index rose by 3.2%, and the S&P 500 stock index climbed by 4.4%.
　　“The scale of foreign exchange reserves has risen due to the combined effects of factors such as exchange rate conversions and changes in asset prices,” analyzed Wen Bin, chief economist at China Minsheng Bank.
　　Our country has relatively ample foreign exchange reserves.
　　The recovery momentum has a solid foundation.
　　Throughout 2023, against the backdrop of a slowing pace of Federal Reserve tightening, a pullback from the highs in the U.S. dollar index and U.S. Treasury yields, and an overall strengthening of global stock markets, China’s foreign exchange reserves remained steadily above US$3.1 trillion, increasing by US$110.3 billion for the year.
　　“China’s foreign exchange reserves are relatively ample, providing a crucial safeguard against the rising complexity, severity, and uncertainty of the external environment,” said Guan Tao. By the end of 2023, China’s foreign exchange reserves stood at roughly 15 months’ worth of import payments—more than one month higher than at the end of the previous year—and significantly above the international alert threshold of no less than 3 to 4 months.
　　Looking ahead at the fluctuation trend of China’s foreign exchange reserves, experts believe that the convergence of multiple positive factors has laid a solid foundation for the recovery of China’s foreign exchange reserves.
　　Wen Bin noted that, as China’s economy continues to strengthen and improve, the foreign trade market is diversifying, the export structure is steadily optimizing, and the resilience of foreign trade is continuously increasing. Meanwhile, rising expectations of interest-rate cuts by the Federal Reserve are narrowing the interest-rate spread between China and the U.S., leading to an increase in foreign capital inflows under the capital account. All these factors are conducive to maintaining overall stability in the balance of payments and laying a solid foundation for the recovery of China’s foreign exchange reserves.
　　Guan Tao stated that with the domestic economy continuing to recover and improve, and as the turning point for overseas monetary tightening draws near, this will provide support for maintaining the basic stability of China’s foreign exchange reserves.
　　The 2024 National Foreign Exchange Management Work Conference recently held laid out six key priorities for this year, one of which is “improving the management and operation of foreign exchange reserves with Chinese characteristics to ensure the safety, liquidity, and preservation and appreciation of foreign exchange reserve assets.”
　　Gold reserves “increase for the 14th consecutive month”
　　China’s central bank purchased over 200 tons throughout the year.
　　Changes in global central banks’ foreign exchange reserve strategies are seen by investors as an important indicator of market trends, and increasing gold reserves has been a key feature of global central banks’ foreign exchange reserve changes in 2023.
　　According to data from the World Gold Council, in the first three quarters of 2023, global central banks’ demand for gold increased by 14% year-on-year, reaching a record high of 800 tons.
　　At a time when central banks around the world are reaching record highs in gold purchases, China’s central bank continues to increase its gold holdings. Throughout 2023, China’s central bank added 7.23 million ounces of gold, equivalent to roughly 205 tons.
　　Regarding central banks’ increasing their holdings of gold, Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank, stated that, from a trend perspective, the process of diversifying foreign exchange reserves across countries has significantly accelerated. The primary goal is to optimize and diversify the structure of official reserve assets, thereby enhancing the stability of these assets and strengthening their resilience to external risks. Moreover, given the current marked increase in global political and economic uncertainties, it is reasonable for central banks to appropriately increase their gold reserves, which can help diversify risks, bolster the stability of official reserve assets, and enhance the resilience of the financial system.