As central bank from India to Czech has intervened to support local currency exchange rate , global foreign exchange reserves are declining at the fastest speed on record. According to data statistics from Bloomberg, global foreign exchange reserves have shrunk by about $1 trillion to $12 trillion this year, a drop of 7.8%, setting the largest drop since Bloomberg began compiling the data in 2003.
The logic behind this is that the United States has encountered the highest inflation level since the early 1980s, resulting in the Federal Reserve taking the most radical interest rate hike in 40 years. Since March, the Fed has raised interest rates five times in a row, with the last three hikes sharply by 75 basis points. After five interest rate hikes, the Federal Reserve has raised a total of 300 basis points this year, and the target range of the federal funds rate has been raised to between 3.00% and 3.25%. With the continuous interest rate hikes from the Federal Reserve, the dollar index has also opened all the way, accelerating its rise since April, setting a new high in 20 years during the session. The
USD index soared, causing major non-USD currencies around the world to depreciate significantly. For example, the yen exchange rate against the US dollar fell to a new low in 24 years, the won hit its lowest level in 13 years, and the pound fell to a new low in 37 years. The euro fell below the exchange rate and parity, reaching the lowest in 20 years. The stronger RMB has also fallen by about 10% since the beginning of the year in the face of the strong US dollar.
According to Bloomberg, there are two main reasons for the decline in foreign exchange reserves in various countries. First, as the exchange rate of the US dollar against other major global reserve currencies (such as the euro and the yen) rises to a 20-year high, the value of these currencies converted into the US dollar also declines, so the foreign exchange reserves in various countries shrink accordingly; in addition, the reduction in foreign exchange reserves also reflects the pressure on foreign exchange markets in various countries, forcing more and more central actions to use reserve funds to resist the depreciation of local currency , and at the same time prevent international funds from flowing out of their own markets.
For example, India's foreign exchange reserves have fallen by $96 billion this year to $538 billion. The RBI said valuation changes accounted for 67% of the decline in reserves in the fiscal year starting in April, meaning that the shrinkage of the remaining foreign exchange reserves came from interventions to support the local currency, i.e., selling foreign exchange reserves in the market. The Indian rupee has fallen by about 9% against the dollar this year and hit a record low in September.
Japan spent about $20 billion in September to stop the yen's decline, the first time since 1998 that Japan has intervened in the forex market to support its currency. US$20 billion will account for about 19% of Japan's foreign exchange reserves shrinking this year. The Czech Republic also adopted monetary intervention measures, with the country's foreign exchange reserves falling by 19% since February. In addition, South Korea also joined the ranks of intervention last month, with the country's central bank saying it would purchase up to $2.1 billion in government bonds. The Bank of Thailand said on October 1 that it is reducing the volatility of the Thai baht by intervening in the foreign exchange market, and the current exchange rate of the Thai baht to the US dollar has been hovering at its lowest point in nearly 16 years.
The Fed's aggressive interest rate hike has stirred up sharp fluctuations in global markets, increasing the risk of a global recession. According to a report by the Wall Street Journal on Monday, the UNCTAD called on the Federal Reserve and other central banks to stop hikes. The UNCTAD said that if the Federal Reserve and other central banks continue to raise interest rates, it may push the global economy into recession and then fall into long-term stagnation. The United Nations organization believes that policymakers should pay more attention to measures directly targeting price increases, and raising interest rates is almost helpless in alleviating energy and food shortages.
Global Times-Global Times Report Reporter Ni Hao
