"My greatest worry is the fast depletion of foreign exchange reserves," said Yu Yongding, a member of China’s monetary policy committee when the currency was revalued in 2005.
"Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies. When those factors are taken into account, some $2.8 trillion in reserves may already be spoken for just to cover its liabilities"
As it was in 2007 with subprime, speculators are betting that the world's largest export economy, now slowing, will be forced to massively devalue the currency...a systemic bet that like subprime, if "successful" will bring down the global financial system...the cost of December's "controlled devaluation" was $5 billion per trading day...
At December's rate, China's $3.3 trillion of reserves are being drawn down at an annualized rate of $1.3 trillion, assuming no acceleration:
"Policy advisers are worried the PBOC's gradualist approach risks reinforcing expectations for more depreciation - a sort of self-fulfilling prophecy"
Yuan (red) with S&P (black):