Global currency reserves fall by a record $1 Trillion

The worldwide currency market reserves are falling at the fastest pace. In the year 2022, the reserve has declined by 1 trillion or 7.8 percent to 12 trillion, the biggest drop since 2003.

The decline comes amid the central banks of India and the Czech Republic’s intervention to support their own currencies. India’s reserves have collapsed by $96 billion this year to $538 billion. In India, Foreign reserves are still 49 percent higher than 2017 levels and enough to pay for nine months of imports.

The central bank said, “Asset valuation changes account for 67 percent 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 percent against the dollar in 2022 and hit a record low last month.”

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 decreasing 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 curb the depreciation.

Central banks buy dollars and build up their stockpiles to slow currency appreciation when foreign capital floods in. In bad times, they draw on the reserves to soften the blow from capital flight. said Alan Ruskin, Chief international strategist at Deutsche Bank AG, said, “Some countries, notably in Asia, can go both ways, smoothing weakness, and pockets of strength.”