“In terms of the situation in December, the central bank’s supply of foreign exchange to adjust market demand and supply, the depreciation of non-US dollar currencies against the greenback and other factors led to the decline of foreign exchange reserves,” the regulator said.

It is widely understood that the PBOC has frequently used foreign exchange reserves since the summer of 2015 to prevent sharp depreciation of the yuan and stem risks of capital outflow.

Looking ahead, the central bank underscored the necessity to stabilise market expectations and prevent financial risks as this year’s priorities.

The PBOC would “proactively guide and stabilise market expectations and ensure a basically stable yuan at a reasonable level”, the central bank said in a statement released late on Friday that outlined its major tasks for 2017.

Unlike a statement that concluded the key annual Central Economic Work Conference in December, the PBOC’s statement on Friday did not mention “increasing the yuan’s flexibility” but instead repeated the need to further improve market-oriented mechanisms to determine the yuan’s value.

The yuan exchange rate has seen sharp swings this week both onshore and offshore as the central bank tried to defeat short bets and played hard in a tug of war against market expectations.

The offshore yuan gained 2.5 per cent against the US dollar on Wednesday and Thursday, but fell by nearly 1 per cent on Friday. The onshore pair wiped out most of the gains seen in the previous day.

The country’s foreign exchange reserves plummeted nearly US$1 trillion by the end of 2016 from their peak level of US$3.99 trillion in June 2014.

In an apparent effort to cool the debate, Xinhua news agency cited an unidentified official as saying the market should not focus on a certain level of foreign exchange reserves. Instead, it should focus on whether the reserves could continue to offer liquidity to the market and whether they were able to counter external shocks, the official said.

The official insisted that China’s foreign exchange reserves were ample and that being below a certain level would not necessarily lead to crisis.

But voices have been raised that the central bank should place more emphasis on safeguarding foreign exchange reserves and allow more depreciation of the yuan.

Based on data at the end of 2015, the International Monetary Fund estimated that China needs to have foreign exchange reserves of between US$1.75 trillion with capital controls and US$2.82 trillion without capital controls to counter a currency attack.

“If the PBOC uses FX reserves to defend the exchange rate for too long, the gradual decline of its reserves may erode confidence,” Wang Tao, chief China economist with UBS, said in a research report.

“Therefore, although China’s reserves are largely liquid and usable, we do not expect the country to deplete its reserves before moving on to other tools to manage its exchange rate”.

She expected the yuan to trade at 7.3 to the dollar at the end of 2017 and foreign exchange reserves to continue to fall, but to remain above US$2.7 trillion.

Xie Yaxuan, research head with China Merchants Securities, said it didn’t make sense to debate whether the US$3 trillion level was breached or not.

“There is no necessity to defend the level of US$3 trillion,” he said. “The big swings in the yuan’s exchange rate are inevitable when the yuan moves gradually to a complete float and the market is yet to quite get accustomed to the fluctuation.”