China: QE in reverse?

The decline in China's forex reserves is akin to quantitative easing in reverse. It is as important as the market's decline or the antics of the yuan

It is now almost a month since China surprised the rest of the world by devaluing its currency. How much of foreign exchange reserves it lost in August after the currency move has since been a key number to watch.

Data released on Monday showed China’s foreign exchange reserves fell by a record $93.9 billion to $3.56 trillion in August.

China saw its forex reserves peak at $3.99 trillion in June 2014. It has since lost nearly $444 billion.

There are two reasons why the foreign exchange mountain is now being whittled away.

First, the Chinese central bank has been intervening in the foreign exchange market to stabilize the yuan. Second, capital has been fleeing China because of the sharp economic slowdown.

The decline in the foreign exchange reserves is akin to quantitative easing in reverse. It is as important as the stock market’s decline or the antics of the yuan.

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