The great global monetary tightening of 2015 is under way, but it’s not being led by the Federal Reserve.
Even as U.S.
policy makers ponder whether to raise interest rates this month, one
recent source of central bank liquidity in financial markets is drying
up and the loss of it partly explains August’s trading volatility.
Behind
the drawdown are the foreign exchange reserves run by the central
banks. Bolstered following financial crises in the late 1990s as a
buffer against capital outflows and falling currencies, such hoards fell
to $11.43 trillion in the first quarter from a peak of $11.98 trillion
in the middle of last year, according to the International Monetary
Fund.
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