Falling Reserves, Policy Missteps Weigh on China's Currency

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Falling Reserves

Aninda Mitra

Aninda Mitra - Senior Sovereign Analyst

Steep losses in foreign currency reserves and policy missteps are leading to concerns about the potential for a larger devaluation of China’s currency. While we believe it’s still too early to expect a “hard landing” in China any time soon, a larger devaluation of the CNY is a growing possibility and likely to have ripple effects across Asia FX and possibly through other EM/commodity currencies as well. In addition, the effects of any continuation in policy divergence across other G3 central banks (the Fed, Bank of Japan and the European Central Bank), along with China’s seeming inability to smoothly implement policy and structural reforms, are also cause for concern.

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