China's currency reserves dropped another $99.5 billion last month

Photo: Kevin Frayer/Getty Images

China’s massive foreign exchange reserves shrank for the third month in a row to the lowest levels since May 2012.

The People’s Bank of China reported Sunday that during January reserves dropped by $99.5 billion to $3.23 trillion, slightly more than the $3.2 trillion markets expected in their poll Reuters said after the data was released.

At $99.5 billion the fall is second only to December’s drop in reserves of $107.9 billion, and shows the trouble Beijing is having restraining capital flows and fighting the trend toward a weaker Yuan.

For the year to December reserves dropped $513 billion. But if the current pace keeps up China will burn through more than $1 trillion of its war chest this year.

“While the remaining reserves represent a substantial war chest, the rapid pace of depletion in recent months is simply unsustainable,” Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore told Bloomberg.

“Domestic private investors and global currency traders see a one-way bet against the currency. This has resulted in large-scale private capital outflows since early 2015 as expectations mount that the PBOC will eventually be forced to capitulate once its reserves are sufficiently depleted,” he said

With China, and much of Asia, on holidays for the Lunar New Year celebrations we may avoid the ructions this data could cause this week.

But, expect this to remain a big story for 2016.

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