CHINA’S central bank flagged the chance of further fluctuations in its foreign exchange reserves Tuesday, but said these would be “normal” as it defended a new regulation imposed on its currency forwards market earlier this month.

    Official data Monday showed China’s foreign exchange reserves, the world’s largest, dropped by a record US$93.9 billion in August to US$3.557 trillion, reflecting the government’s attempts to stem a slide in the yuan following a currency devaluation.

    Analysts have said China’s efforts to prop up the yuan were futile as its reserves are not bottomless and market forces will have to hold sway at some point. But in a response to comments that the world’s second-largest economy was burning through its reserves, the People’s Bank of China countered that “China has sufficient reserves.”

    It said the Chinese economy can sustain its mid-to-high-speed growth in the long run and will continue to run a current surplus — which should help grow future reserves.

    The central bank conceded that the drop in reserves in August was due partly to its intervention in the foreign exchange market, but noted fluctuations in other currencies also played a part.

    It said a growing preference among households and companies for foreign currencies also reduced China’s stockpile and a drawdown in entrusted loans funded by the reserves had exacerbated the decline.

    As China continues to refine its foreign exchange system and increase international use of the yuan, “future rises and falls in the foreign exchange reserves would also be normal,” it said.

    The central bank also addressed concerns about a new control requiring banks to set aside 20 percent in foreign exchange reserves on behalf of clients trading currency forwards.

    The measure was unveiled as the yuan experienced its most volatile year in a decade. The shock August devaluation preceded a sharp fall in the yuan, followed by an unexpected period of gains as authorities moved to shore up the currency to deflect accusations they had triggered competitive devaluations between nations.

    The new rule, effective Oct. 15, has not been announced by the central bank, but has been widely leaked by sources in the financial sector. (SD-Agencies)