(Yicai Global) June 8 -- China's foreign exchange reserves fell for the first time in three months in May, mainly because of exchange rate moves and lower financial asset prices.

China's forex reserves stood at CNY3.765 trillion at the end of last month, down USD28.3 billion or 0.9 percent from USD3.2048 trillion at the end of April, according to data the State Administration of Foreign Exchange released yesterday. April’s figure was the highest since February 2022.

The foreign exchange watchdog attributed the decline to the combined effect of exchange rate and asset price changes, but also said reserves are expected to remain generally stable as China's economy continues to pick up.

The main reason for the drop was the exchange rate, Zhao Qingming, vice president of China Forex Investment Research Institute, told Yicai Global. The decline was not large and was within a reasonable range, he added.

The US dollar index jumped 2.5 percent last month. Other major currencies, including the Japanese yen, the euro, and the British pound, all fell between 2 percent and 3 percent against the greenback, resulting in a book loss of about USD25 billion after converting the non-US dollar assets in China's forex reserves into dollars.

Another reason was lower asset prices, as US Treasury, European, and Japanese bond prices have retreated since late May. Forex reserves have some investment income each month, and a very small part of it is used to buy gold reserves, with calculations showing that the monthly drop was USD28.3 billion.

The SAFE's data also showed that China's gold reserves rose for the seventh straight month in May, climbing by around 500,000 ounces to 67.27 million oz.

The ongoing increase in China’s gold holdings is reasonable and conducive to the adjustment and optimization of the country’s forex reserves structure, according to Zhao.

The total amount of gold China holds is relatively small compared with that of the United States and Germany, and China’s share of gold in forex reserves is also quite low compared with major countries.

“Gold does not rely on the credit of any country's government,” Zhao pointed out. “It has a more independent existence.

“In recent years, in the face of challenges such as international geopolitical risks, many countries are considering 'de-dollarization' and increasing their holdings of gold as one of the most reasonable choices,” he added.

Editor: Martin Kadiev