THE decline in China’s foreign reserves is good news in the long-run, central bank advisor Fan Gang told Bloomberg News yesterday, describing the yuan as being at a “turning point” after possibly being overvalued in recent years.

    Fang said in an interview that the government’s moves to restrict capital outflows, which have fuelled a depreciation in the yuan, is to prevent rapid fluctuations in reserves, which hit near six-year lows in December.

    “The yuan was maybe overvalued for the last three or four years ... it’s come to a turning point. This should be corrected,” Fan said.

    “We have been talking about the inefficiency of US$4 trillion in foreign reserves and the ridiculousness of a developing country financing a developed country,” Fan added.

    China does not like to see fast changes in the country’s foreign reserves, Fan said, and while China will not totally drop capital control measures, it is unlikely they will step them up.

    China’s reserves shrank by US$41 billion to US$3.011 trillion in December, posting the sixth straight month of declines, data showed Saturday, after a week in which China moved aggressively to punish those betting against the currency and make it harder to get money out of the country.

    The inclusion of the yuan in the special drawing rights basket made the yuan an international currency, which means China needs to hold less foreign reserves for the purpose of international credit, Fan said. (SD-Agencies)