Emerging market countries’ foreign exchange reserves tumbled by $550bn in the nine months to the end of March, figures released on Tuesday by the International Monetary Fund showed.
EM reserves now stand at just $7,505bn, a fall of $227bn during the first three months of the year. This represents an acceleration in their rate of decline, having fallen by $179bn in the last three months of 2014 and by $147bn in the third quarter of last year, after peaking at $8,058bn in June 2014.
The data have fed into a narrative that emerging market countries are running down their reserves in order to prop up their currencies against a resurgent US dollar.
They have also led to a perception that emerging markets have passed the point of “peak reserves”; nine out of 10 EM economists polled by the Financial Times in April supported this proposition.
Massimiliano Castelli, head of strategy for sovereign institutions at UBS, wrote recently that the three historical drivers for the growth of EM forex reserves had all weakened.
The current account surpluses of China and other Asian countries had fallen, to the extent that developed countries’ trade balances had moved from an aggregate deficit of $574bn in 2008 to a surplus by 2013. Lower commodity prices had eaten into the surpluses of Middle Eastern states and other major exporters. The “unprecedented” capital inflows into emerging markets had softened and potentially even started to reverse.