The US dollar is hiking interest rates, and the dollar continues to appreciate, with the latest data already breaking through 104 during trading.
In this process, our foreign exchange reserves have lost 130 billion US dollars.
What is the reason?
What should we do?
01. Reduction of foreign exchange reserves
Yesterday, we saw the latest foreign exchange reserve data released, which calculated our country's foreign exchange reserves in US dollars at 3,119.72 billion. This figure has decreased by 68.274 billion compared to last month, a reduction of 2.14%, which is a continuous decrease for several months this year.
In December last year, our foreign exchange reserves were over 3,250 billion US dollars, then in January this year it was 3,221 billion US dollars, and in February it further decreased to 3,211.8 billion, and in March it has already broken through 3.2 trillion, at 3,187.9 billion. This month it has significantly decreased again, and now it has become 3,119.7 billion, which may break through 3.1 trillion next month.
From December last year to now, our foreign exchange reserves have decreased by more than 130 billion US dollars. Our foreign exchange reserve data is getting smaller and smaller, and the most important reason is that the US dollar is raising interest rates.
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During the US dollar's interest rate hike cycle, the dollar will appreciate, and we still have some non-US dollar assets in our foreign exchange reserves, which are not priced in US dollars and have depreciated when converted into US dollars; another reason is that during the appreciation of the US dollar, the prices of many assets have fallen, which has also led to a reduction in our assets.02, Reason
What we discussed earlier was that our foreign exchange reserves decreased when valued in US dollars. However, if we use the SDR (Special Drawing Rights) to value our foreign exchange reserves, they actually increased. In April, if calculated using SDR, our foreign exchange reserves increased by 14.566 billion.
This SDR is a basket of national currencies, including a variety of currencies. If we only value in US dollars, the foreign exchange reserves would decrease due to the depreciation of other currencies; but if calculated using SDR, they actually increased.
Just since April of this year, the US dollar index has already risen to 103, with an increase of 4.7%. If we calculate from September 30 last year to now, the US dollar index has even risen by 9.5%.
During the process of the US dollar's rise, let's look at the depreciation of other currencies relative to the US dollar in April. For example, the Japanese yen fell by 6.2% in April, the euro fell by 4.7%, and the British pound fell by 4.35%. Think about it, our foreign exchange assets include assets such as the Japanese yen, the euro, the British pound, etc., so relatively speaking, they have decreased.
On the other hand, the continuous appreciation of the US dollar has also caused the prices of many assets to fall. In April alone, Japan's stock market fell by 3.5%, Europe's stock market fell by 2.6%. Including the US stock market itself, the S&P 500 index also fell by 8.8%.
03, More US Dollar Assets?
Some friends may say, since our other currency assets have shrunk due to the appreciation of the US dollar, if we hold more US dollar assets, we won't be affected, right?
This thinking is actually wrong.Take a look, currently in our assets exceeding three trillion US dollars, one trillion of it is US debt. However, the US debt has fallen quite sharply recently, which has also caused our losses.
We often see the yield on the 10-year US debt breaking through 3%, and how much has the yield on the two-year US debt increased. In fact, the rise in yield is just an indication that the price of US debt is falling.
In terms of bonds, if we look at the global bond index priced in US dollars, it has recently fallen by 2.7%.
In any country, any economy, it is actually the same. Generally speaking, interest rate hikes will lead to a decline in bond prices. So in this case, it is not that we should hold more US dollars, but we should slightly reduce our holdings of US dollars, especially US bonds, because US debt has indeed fallen quite sharply recently.

04, Gold
So what should we hold?
I personally believe that we should appropriately hold more gold. In this announcement of foreign exchange reserves, our country's gold reserves were also announced. Currently, our country's gold reserves are 1948 tons, but unfortunately, they are the same as last month. That is to say, our gold reserves have not increased.
If in the future, we appropriately shift more to other assets, including gold, I think it may be safer for our foreign exchange reserves.
Some people might say, gold is currently at a relatively high level. If we buy gold now, is it possible that we might suffer a greater loss when it falls in the future?We need to view gold from different perspectives.
If we consider it from an individual standpoint, gold is more about its collectible or investment attributes; however, for a country or a central bank, it is more about its reserve attribute.
Different attributes lead to significant differences in the timing of buying and selling.
05, Capital Outflow?
Lastly, I would like to remind everyone that along with the announcement of foreign exchange reserves this time, the spokesperson also casually mentioned that since April of this year, our cross-border capital has generally been net inflow.
Although we see a slight decrease in foreign exchange reserves, the continuous appreciation of the US dollar, and a slight depreciation of the Chinese yuan, there is no need to worry. For now, there has not been a significant phenomenon of capital outflow, at least the capital was generally net inflow in April.