World currency reserves shrink by $1 trillion in record drawdown

Global foreign-currency reserves are falling at the fastest pace on record, as central banks from India to the Czech Republic intervene to support their currencies.

Reserves have declined by about $1 trillion, or 7.8%, this year to $12 trillion, the biggest drop since Bloomberg started to compile the data in 2003.

Part of the slump is simply due to valuation changes. As the dollar jumped to two-decade highs against other reserve currencies, like the euro and yen, it reduced the dollar value of the holdings of these currencies. But the dwindling reserves also reflect the stress in the currency market that is forcing a growing number of central banks to dip into their war chests to fend off the depreciation.

India’s stockpile, for example, has tumbled $96 billion this year to $538 billion. The country’s central bank said asset valuation changes account for 67% of the decline in reserves during the fiscal year from April, implying the rest came from intervention to prop up the currency. The rupee has lost about 9% against the dollar this year and hit a record low last month.

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