Friday, 9 October 2009

المتداول العربىEmerging Markets Shed FX Reserves

المتداول العربىEmerging Markets Shed FX Reserves
According to the most recent monthly data, the foreign exchange reserves of most developing countries are disappearing faster than they can be replenished.

As a result of the global credit crisis, central banks have taken to deploying vast sums of capital towards the dual ends of stimulating their economies and propping up their currencies.

The latter can be especially expensive, as countries like Ukraine and South Korea can attest. Both countries have spent 20% of their respective reserves to halt the decline of their currencies, and both abandoned such a strategy after accepting its futility.

Ironically, there seems to be a direct correlation between dwindling forex reserves and a depreciating currency, as investor nervousness and currency devaluation reinforce each other. There is one bright spot in this quagmirem, however.

The Guardian reports:
China says its reserves are continuing to rise, with the chief economist at the National Bureau of Statistics telling Reuters they would exceed $2 trillion by the end of the year.

Beijing [will] not resort to "panic selling" of reserves, instead maintaining a "prudent and responsible" stance