China has blown about $1 trillion in US reserves defending the yuan from capital flight in the last year. Nearly $100 billion of that reserve outflow came in January. Let’s s take a look at the results in pictures.

Intervention Results in Pictures

Interventions Don’t Work

From 6.214 to 6.569 is a 5.4% decline in the yuan relative to the US dollar since August.

China’s intervention has not accomplished much of anything other than blowing currency reserves. In general, currency interventions don’t work.

China’s Dwindling Reserves

The BBC reports China’s Currency Reserves Plunged in January

China has been running down its vast foreign currency reserves in an attempt to boost the value of its own currency and stem a flow of funds overseas.

At $3.23 trillion, China still has the world’s biggest reserve of foreign currency holdings. But that has declined by $420bn over six months and stands at the lowest level since May 2012.

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 currency.

To stabilize the situation China has been selling dollars and buying yuan.

Prop Job Unsustainable

China still has over $3 trillion in reserves, but it cannot continue burning them up at the rate of $100 billion a month or they will be gone in less than three years.

On August 11, 2015, China Joins Currency War With Surprise Devaluation, Biggest One-Day Move on Record.

That surprise devaluation was supposed to be a “one time” affair with the yuan subsequently stable. In August, following the devaluation, I received a reader question: Is China a currency manipulator?

Of course China is. So is the Fed, ECB, Bank of Japan, and every other central bank.

China and the National Bank of Switzerland manipulate their currencies with pegs. The ECB, Fed, and Bank of Japan manipulate currency with interest rate interventions and QE. The Bank of Japan also intervenes directly.