Many in China are asking whether policymakers will defend the exchange rate or FX reserves, one analyst says. REUTERS/Jason Lee
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As China's foreign exchange reserves threaten to tumble below the critical $3 trillion mark, the biggest fear for investors is not whether Beijing can continue to defend the yuan but whether it will set off a vicious cycle of more outflows and currency depreciation.China stepped into both its onshore and offshore yuan markets this week to shore up the yuan as it neared the 7 level, sparking speculation that it wants to regain a firm grip ahead of the Jan. 20 inauguration of U.S. President-elect Donald Trump, who has threatened to brand Beijing a currency manipulator.But if forex reserves continue to be depleted at a fast pace and capital flight continues, some strategists believe China's leaders may have little choice but to sanction another big "one-off" devaluation.As recently as last week, authorities introduced requirements for financial institutions to report all single domestic and overseas cash transactions of more than 50,000 yuan ($7,200) from July onward, down from 200,000 yuan previously.
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