Global reserves are falling foreign currency At the fastest pace ever, central banks are stepping in from east to west to support their currencies.
According to data compiled by Bloomberg, reserves have fallen by about $ 1 trillion, or 7.8%, this year to $ 12 trillion, the largest decline since it began collecting data in 2003, according to reports. seen by Al Arabiya.net.
Much of the decline is due to valuation changes. With the dollar leaping to the highest levels of the past two decades against other reserve currencies, such as the euro and the yen, the dollar has thus reduced the value of these banks’ dollar holdings. But the decline in reserves also reflects the pressure in the currency market which is forcing an increasing number of central banks to use their currency assets to avoid a decline.
For example, India’s reserves fell by $ 96 billion this year to $ 538 billion. The country’s central bank said changes to asset valuation accounted for 67% of the decline in reserves during the fiscal year that began in April, meaning the rest came from bolstering the currency. The rupee has lost about 9% against the dollar this year and hit an all-time low last month.
Japan spent about $ 20 billion in September to slow the yen’s decline in its first currency support intervention since 1998. That would account for about 19% of the reserve loss this year. Currency intervention in the Czech Republic has helped reduce reserves by 19% since February.
While the magnitude of the decline is unusual, the practice of using reserves to defend currencies is nothing new. Central banks buy dollars and increase their stock of currencies to slow a currency’s appreciation as foreign capital flows. In difficult times, they rely on reserves to cushion the blow of capital flight.
The evolution of foreign exchange reserves
“Some countries, particularly Asia, could go both ways to calm the weakness,” said Alan Ruskin, chief international strategist at Deutsche Bank AG.
Most central banks still have enough strength to continue interventions if they so wish, as India’s foreign reserves are still 49% above 2017 levels, enough to pay off 9 months of imports.
Central banks, including Indonesia, Malaysia, China and Thailand, will release their latest foreign reserve data on Friday.
But for others, they sell out quickly. Figures compiled by Bloomberg show that after a 42% decline this year, Pakistan’s $ 14 billion reserves are not enough to cover 3 months of imports.
