Hong Kong’s forex reserves drop in August due to ‘technical classification’, monetary authority says
- Foreign exchange reserves fell from a record US$448.4 billion in July to US$432.8 billion, the biggest drop since monthly data was first published in 1997
- The sharp US$15.6 billion decline was due to assets being transferred to local banks, according to the Hong Kong Monetary Authority
The Hong Kong Monetary Authority said on Thursday that the decline in foreign currency reserve assets in August was due to a “technical classification” rather than a real change in the amount held by the city’s de-facto central bank.
Foreign exchange reserves fell from a record high of US$448.4 billion in July to US$432.8 billion last month, with the sharp US$15.6 billion decline the biggest since monthly data was first published in 1997.
“The decline in foreign currency reserve assets in August was mainly due to a transfer of funds resulting in a higher amount of foreign currency deposits placed by the Exchange Fund with banks in Hong Kong,” according to the spokeswoman at the Hong Kong Monetary Authority (HKMA).
Since foreign currency assets at local banks are not classified as reserves according to the guidelines of the International Monetary Fund, then the drop in foreign exchange reserves in August was merely a technical classification, the HKMA explained.
This is about technical classification rather than real changes in the total amount of foreign currency assets. In fact, the Exchange Fund’s total foreign currency assets and liquidity have remained stable
“As such, this is about technical classification rather than real changes in the total amount of foreign currency assets. In fact, the Exchange Fund’s total foreign currency assets and liquidity have remained stable,” it added.
Analysts, however, argued that the fact that the city’s foreign exchange reserves dropped sharply in August and foreign currency assets had been transferred to local banks, it should still be seen as a capital outflow transaction under the city’s balance of payments, which records all monetary and economic transactions with the rest of the world.
But analysts said that they would need to wait until the release of the quarterly balance of payment data later this year to obtain a clearer picture of the movement of Hong Kong assets and thus the strength of the economy compared to opportunities that exist abroad.
Hong Kong is expected to release its second quarter balance of payments data in mid-September and third quarter figures in mid-December.