The PBOC’s balance sheet was relatively quiet in February, with no large moves on either side of its ledger. In fact, these minor shifts appeared to be more so adjustments than the more extreme efforts the central bank had become used to undertaking. The heavy lifting was accomplished in January at least as far was what is visible, leaving February’s statement seemingly unremarkable.

Total forex assets, the very base of the PBOC’s monetary existence, actually rose slightly February for the first time since October. This is not to say that the PBOC wasn’t still releasing its “dollar” base back into the system (“selling UST’s”), as the mainline of its forex assets declined by RMB 229 billion. That amount was offset by “other foreign assets” which includes the dollar reserve requirement imposed on October 15 on Chinese banks that allow their customers to “buy dollars.” In February, the increase in those balances, which amount to nothing more than a zero-interest, 1-year dollar loan to the PBOC, was slightly higher than the reported amount of forex declines.

That jump in February in “other foreign assets” was by far the largest since the requirement was imposed; nearly 9 times as large as the “flow” taken in January when conditions were far more intense. That suggests that whoever was “buying dollars” in February at least through official Chinese banking channels was doing so at a massive pace. From that we can infer, given the rough peg in CNY and SHIBOR, and now more calm in even offshore HIBOR (subscription required), that there was far more going on than it may have seemed from official statements and reports.

From the PBOC’s perspective, this reserve requirement is only refilling what looks to have been a “dollar” cushion that was used up right in August 2015. In other words, the Chinese central bank is using “dollar” demand through banks to fund at no cost its emergency ability to handle the next drastic “dollar” shortage.

I wrote back in October just a week before the dollar reserve became active:

In any situation where banks are funding “dollar” positions on a client’s behalf triggers this reserve; the transactions where the client is providing “dollars” to banks are not. Looking at that factor from the bland, orthodox perspective might lead to “curbing the yuan’s depreciation” as a reason for the peculiar arrangement here, while the wholesale view suggests a multi-layered tactic to suppress difficulties within China’s end of the global “dollar” short.

For one, it seems to have worked, at least for the month of September. While China still reported dollar outflows, -$43.26 billion, they were far less than anticipated and less than half of what was reported in the amazing “run” of August (-$93.9 billion). Predictably, that has led already to pronouncements that “it” is “over.”