FX settlement (a measure that includes fx purchased by the state banks) has historically been a reliable indicator of Chinese intervention in the market, and it points to heavy dollar buying in September -- in other words, the CNY was under pressure to appreciate 1/
$50b billion in spot buying, just over $60b counting forwards -- those are big numbers (and they are consistent with the state banks buying at the fix not at the strong side of the band -- an important shift) 2/
And the settlement numbers are now significant relative to China's outsized trade surplus (properly measured, using the actual customs data) 3/
But, as is usual now with China, not everything lines up. The PBOC balance sheet shrank in September, which would imply the fx in the settlement should show up at the state banks ... yet, it didn't 4/
To be sure, the net foreign assets of the state banks have gone up a lot recently -- they just didn't jump up further in September 5/
And a separate measure of the banks fx balance sheet assets (net foreign assets includes external assets denominated in Chinese yuan) also is moving up ... 6/
The big picture though is pretty clear - China's banks are the main vector for managing the currency these days (the PBOC balance sheet number is stable and falling, which isn't painting a useful picture) and China is resisting appreciation pressure once again 7/
And as always there are puzzles -- such as the recent divergence (now in both directions) between net settlement and the underlying PBOC and state banking data (one theory is the state banking data now includes a lot of CNY external assets) 8/
@Brad_Setser Conclusion: the Chinese export machine is alive and well?
@Brad_Setser Are these including gold reserves and revaluations or only pure FX? In USD, gold reserves increased by 39B $ in just 2 months. May explain the reserves increase in parts, unless gold is not in this number.
@Brad_Setser 👀