Global foreign exchange reserves may have fallen in the third quarter for the first time since the financial crisis as central banks stepped up interventions to prevent their currencies from falling too sharply.
As the U.S. Federal Reserve gears up to raise interest rates next year, dollar-funded “carry trades”, in which traders borrow in low interest rate currencies to buy higher-yielding but riskier assets, are being unwound rapidly.
And with a currency crisis hitting Russia, fears have grown that emerging market central banks may have to intervene more to stem capital flight and prevent sharp local currency losses.
Global reserves hit a record $12 trillion in the second quarter of this year, up from $11.86 trillion in the first three months of the year. But they could dip in the third quarter for the first time since late 2008/early 2009. The IMF releases the data later this month.
Here is what some countries are doing to tackle the dollar’s strength and details on their foreign exchange reserves:
Russia’s central bank is estimated to have conducted over $80 billion in currency market interventions this year to support the rouble, which has nevertheless fallen around 50 percent versus the dollar. Reserves stood at $416.2 billion as of Dec. 10, down from $509.6 billion at the end of 2013 and $475.8 billion at the end of June.
South Korea’s foreign reserves shrank for a fourth consecutive month in November as the dollar strengthened against currencies including the euro and sterling. Data shows its reserves fell to $363.10 billion by the end of November from $363.72 billion a month earlier.
The lira hit a record low this week against the dollar and is down 9 percent this year. Turkey’s foreign exchange reserves stood at $131.9 billion, down marginally from end-2013 levels and from $133 billion at mid-year.
The real has hit 10-year lows against the dollar and is down 13 percent this year. This prompted the central bank to intervene via currency swaps worth up to $200 million a day. Brazil has forex reserves of $374 billion, down from $380.5 billion in June.
The rupee hit a 13-month low this week, with the central bank cited by traders as selling dollars to prop up the currency. India’s FX reserves fell to $314.66 billion as of Dec. 5 from $316.31 billion a week earlier. Reserves were at $315.8 billion at end-June.
The rand has fallen 10.5 percent against the dollar this year. South African foreign exchange reserves have fallen only slightly to $48.5 billion, however, as the bank tends not to intervene to support the rand.
The naira is at a record low against the dollar, down around 10 percent this year despite repeated central bank intervention. Its foreign exchange reserves stand at $35.4 billion, down from $37.5 billion at the end of June.
The rupiah hit its weakest since 1998 this week. Bank Indonesia said it intervened to reduce volatility rather than defend the currency. The country’s foreign exchange reserves fell to $111.1 billion at the end of November from $111.97 billion a month earlier.
The People’s Bank of China in mid-October said China’s FX reserves had fallen to $3.888 trillion as of the end of the third quarter, a decline of $105.21 billion on the quarter and beating the previous record $64.9 billion drop in the second quarter of 2012. This happened despite a record quarterly trade surplus of $128 billion.
The sol has weakened more than 6 percent this year against the dollar and the central bank has sold nearly $4 billion to support it.
The peso is down 11.5 percent this year to near six-year lows versus the dollar. Recent swift moves forced the central bank to hold a $200 million dollar auction last week. The bank has ruled out increasing this amount.
DEVELOPED MARKET ACTIVITY
The Swiss National Bank last week repeated its pledge to buy “unlimited” quantities of foreign currency to prevent the franc from strengthening past the limit of 1.20 per euro it imposed three years ago.
The SNB’s intervention to defend that level has bloated its balance sheet to nearly 500 billion francs. Forex reserves stood at 462.395 billion francs at the end of November, up from 460.556 billion in October. It says it has not intervened in the past two years, but with the euro weakening towards the 1.20 francs level, the SNB’s resolve is likely to be put to the test in the coming weeks.
The Reserve Bank of New Zealand intervened in August for the first time in more than a year to counter the New Zealand dollar’s strength. The RBNZ had been cranking up its intervention rhetoric since July and acted just as the U.S. dollar was rising appreciably, thereby magnifying the intervention’s impact. The RBNZ sold a net NZ$521 million in August, its biggest sale of local currency since March 2011. The central bank’s power may be limited though – daily trade in the “kiwi” is around $100 billion, and its intervention war chest is only around $7.5 billion. (Reporting by Anirban Nag and Sujata Rao; Editing by Hugh Lawson)