(Yicai) July 8 -- Affected by the exchange rate conversion caused by the rise of the US Dollar Index, China’s foreign exchange reserves declined in June, while the country’s gold holdings increased for the 20th consecutive month.

China’s forex reserves declined by USD26 billion to USD3.42 trillion as of June 30 from May 31, remaining above the reasonably sufficient level of USD3.4 trillion for the third month in a row, the State Administration of Foreign Exchange announced yesterday. The forex reserves increased by USD58.4 billion in the first half of the year.

The decline in forex reserves in June was mainly because the growth of the US Dollar Index outpaced that of major financial asset prices worldwide, resulting in a drop in the valuation of all forex reserves denominated in US dollars, Wang Qing, chief macro analyst at Golden Credit Rating International, told Yicai.

China’s strong exports will provide solid support for the stability of forex reserves, Wen Bin, chief economist at China Minsheng Bank, told Yicai. The global investment wave in artificial intelligence and the demand for energy transformation continue to drive the export growth of related Chinese products, he noted, adding that the diversified layout of the foreign trade market can effectively cope with risks from a single economy.

China is also launching more financial opening-up policies to promote cross-border capital flows, Wen pointed out. For example, Pan Gongsheng, governor of the People’s Bank of China, said at the Lujiazui Forum in June that Shanghai will experiment with offshore yuan forex trading, which will make it more convenient for overseas institutions to raise their holdings of yuan-denominated assets.

Gold Holdings Growth Pace Accelerates

With the significant drop in international gold prices last month, the PBOC accelerated its pace of investment in the safe-haven asset. June was the fourth month in a row that China’s central bank increased the amount of gold it purchased.

The PBOC’s gold reserves rose for the 20th straight month by 480,000 ounces to 75.44 million ounces as of June 30 from a month earlier, SAFE data also showed. They expanded by 40,000 ounces in January, 30,000 ounces in February, 160,000 ounces in March, 260,000 ounces in April, and 320,000 ounces in May.

International gold prices plunged 12 percent in June due to expectations for the Federal Reserve to hike interest rates, which was much larger than the 2 percent decline in May. This is probably the major reason for the PBOC to speed up its gold buying pace, Wang pointed out.

By the end of 2025, the proportion of gold reserves to all of the PBOC's official reserve assets was about 9 percent, compared with 27 percent at central banks worldwide, which means that China still has significant room to raise gold holdings in the future, Wang added.

Editors: Dou Shicong, Futura Costaglione