Emerging market (EM) official foreign exchange (FX) reserves have been falling steadily by an average of $58bn a month since reaching an all-time high of $8.17tn in June 2014. This has mainly been due to reductions in China and Russia, but is accentuated by declines elsewhere. Total reserves have also been falling year on year from December 2014, with the cumulative yearly decline accelerating to $385bn in March 2015 (see chart below).
Typically, reserve reductions indicate balance-of-payments pressures and/or central bank interventions in currency markets to dampen exchange rate depreciations. Greater exchange-rate flexibility across EMs and previous reserve accumulations alleviate most immediate concerns, including in China and Russia, but much depends on the direction of commodity prices and global market reactions to the eventual increase in US policy rates.
September 2008 to April 2009 was the only other period in which EM reserves have fallen significantly since the 1997 Asian crisis. Then, the recovery was supported by rapid accumulation in China: EM reserves reached new highs only three months later, in July 2009 (December 2009 excluding China). But the present decline is different in several respects.