Look out world—China's not the only central bank in town selling its currency reserves to cope with a tumultuous global economy.
With crude prices having shed more than half their value over the past year, oil producing economies are feeling the sting of cheaper oil. More importantly, Saudi Arabia—OPEC's largest member and the world's top oil producer—bears watching as oil stays below $50 and a global glut depresses oil prices, analysts say.
Even before China surprised markets by announcing a record drawdown of its foreign currency denominated assets, Saudi Arabia had already begun selling its reserves to plug a hole in its budget and support its flagging currency, the riyal. In February and March, the world's largest oil exporter saw net foreign assets drop by more than $30 billion, the biggest two- month drop on record.
"The drop in oil prices, more so than volatility per se, have contributed to a decline in oil exporters' reserves globally," said Rachel Ziemba, senior director of emerging markets research at Roubini Global Economics, including members of the Gulf Cooperation Council (GCC) and other Middle East economies.
"Across the 11 oil exporters I track, reserves fell by over $200 billion over the last year," she added, even adjusting for changes in other FX holdings such as euros. According to Ziemba, Libya, Algeria and Iraq are also likely to eventually sell some FX assets, as are Bahrain and Oman. Wealthier Gulf nations have sizable FX assets, thus allowing them more time.