Q: The State Administration of Foreign Exchange (SAFE) has just released the latest data on China's foreign exchange reserves. Could you explain why such changes occurred in December 2020? What will be the future trends?

A: China’s foreign exchange reserves hit US$3.2165 trillion by the end of December 2020, up by US$38 billion or 1.2% month on month.

In December, China’s foreign exchange market remained stable on the whole, witnessing rational and orderly market transactions. In global financial markets, due to COVID-19 vaccinations as well as monetary and fiscal policies of the major countries, the US Dollar Index fell, while non-dollar currencies and asset prices of the major countries picked up. As China’s foreign exchange reserves are denominated in the US dollar, the non-dollar currencies increased in value after converted into the US dollars, which, coupled with increase in asset prices, contributed to expanding foreign exchange reserves of the month.

Looking ahead, as the world economic conditions are complex and challenging, and risks associated with the COVID-19 pandemic cannot be overlooked, global financial markets will still remain considerable uncertainties. But China’s foreign exchange market  has the potential to remain at a stable, balanced level and its foreign exchange reserves will be broadly stable.