China has been spending billions of dollars propping up its currency.
That might sound odd given Beijing deliberately devalued its currency in August, but it’s another example of Chinese policy makers failing to anticipate the market’s reaction and paying the price.
New official figures show China’s foreign-exchange reserves fell by a staggering $99.5 billion last month as Beijing sold US dollars and bought yuan to stem its fall against major currencies. That’s more than oil-rich Oman’s economy is worth, according to the World Bank.
China’s central bank still boasts the world’s largest stockpile of foreign currency — worth $3.23 trillion — but it’s hit the lowest level since May 2012. January’s drop-off followed a record fall of $107.9 billion in December.
The data, released by the People’s Bank of China on Sunday, helped fuel a sell-off in global equity markets this week and added to the already long list of worries about China’s economy, which is growing at its slowest pace in a quarter of a century.
US stocks were mostly in the red on Tuesday a day after the S&P 500 lost 1.4 percent and the Dow Jones Industrial Average fell more than 1 percent. That followed sharp falls in Europe where London’s FTSE 100 dropped 2.7 percent while German and French stock indexes fell more than 3 percent.
You might be wondering what all the fuss is about. After all, $3.23 trillion is still a lot of money to have in a rainy day fund. For comparison, the world’s second-largest holder of foreign currency is Japan. Its reserves are worth about $1.25 trillion. So what if China’s falls by a $100 billion or so?