"While the remaining reserves still represent a substantial war
chest, the mathematics around this rapid pace of depletion in recent
months is simply unsustainable for any length of time," said Rajiv
Biswas, Asia Pacific Chief Economist, IHS Global Insight.
The Chinese authorities fear a rapid devaluation of their
currency, as it could destabilise the economy. Many Chinese businesses
hold debt in dollars and managing those debts with a severely weakened
yuan could cause problems and some companies to fail.
So China has been trying to engineer an ordered devaluation of
the yuan, but that is proving hard to deliver.
Investors have been trying to pull funds out of investments
priced in yuan and speculators have been betting on further falls in the
To stabilise the situation China has been selling dollars and
buying yuan. And it has been using other tactics, including curbing
currency speculation and ordering offshore banks to retain their
reserves of yuan.
Commenting on the decline, veteran economist, George Magnus noted
that there is "confusion" over China’s foreign currency policy." Clearly
this can’t go on for long," he tweeted, referring to the fall in