The Decline In The Central Bank'S Foreign Exchange Reserves Has Several Potential Implications For The Global Market.

"For emerging markets, this is a major challenge," says Ren Yong, co-founder of SLJ Macro Partners LLP, a former IMF economist.

Emerging markets need more stimulus, but now they have planted the seeds of future volatility. "

Credit Suisse estimates that if the effect of exchange rate fluctuations is eliminated, developing countries, which account for about 2/3 of the world's foreign exchange reserves, spend 54 billion US dollars in the fourth quarter, which is the highest since the global financial crisis in 2008.

The decline in global foreign exchange reserves comes mainly from China, the world's top foreign exchange reserves, and commodity producers, whose central banks have sold dollars to resist capital outflows and defend their currencies.

In the past year, the index of emerging market currencies against the US dollar has fallen by 15%.

Central bank data show that China's foreign exchange reserves dropped to $3 trillion and 800 billion from the peak of $4 trillion in June last year.

In the past year, Russia's foreign exchange reserves declined by 25% to 361 billion US dollars in March.

The world's foreign exchange reserves ranked third, second only to China and Japan's Saudi Arabia. Since last August, foreign exchange reserves have decreased by 10 billion US dollars to 721 billion US dollars.

Deutsche Bank believes that the decline in foreign exchange reserves in emerging markets may continue as oil prices remain low and the growth of emerging market economies remains weak, reducing the inflow of US dollars to the central bank's foreign exchange reserves.

George Saravelos, a joint head of Deutsche Bank's foreign exchange research, said that this would be bad for the euro. In recent years, the central bank has bought euros to diversify its foreign exchange reserves, which has benefited the euro.

According to the March 31st International Monetary Fund data, in 2014, the share of the euro in global foreign exchange reserves fell to 22% at the lowest level since 2002, while the US dollar rose to a 5 year high of 63%.

Saravelos said that the two regions in the Middle East and China may face continued pressure on foreign exchange reserves in the next few years. The central banks in these two regions need to "sell the euro".

While the European Central Bank increased its monetary stimulus to resist deflation, the euro fell 29 of the 31 main currencies this year.

The euro reached a 12 year low of $1.0458 against the dollar in March, 16.

Apart from highlighting the fact that the US dollar has returned to its undisputed dominant currency position, the decline in foreign exchange reserves of central banks also has several potential impacts on the global market: it may make emerging market countries more difficult to increase the money supply and boost economic growth in a declining trend; it may also exacerbate the euro's decline and combat the demand for US Treasury bonds.