The world’s currency reserves have been reduced by $1 trillion in a record deficit.

As central banks from India to the Czech Republic intervene to defend their currencies, global foreign-currency reserves are plummeting at the quickest rate on record. This year, reserves have fallen by almost $1 trillion, or 7.8%, to $12 trillion, the largest loss since Bloomberg began compiling data in 2003. Part of the slump can be attributed to changes in value.

The dollar’s rise to two-decade highs versus other reserve currencies, such as the euro and yen, lowered the dollar worth of these currencies’ reserves. However, the shrinking reserves also reflect the currency market stress that is prompting an increasing number of central banks to tap into their war chests to combat depreciation.

For example, India’s stockpile has fallen by $96 billion this year to $538 billion. According to the country’s central bank, asset valuation changes account for 67% of the fall in reserves during the fiscal year beginning in April, meaning that the rest came through currency intervention. The rupee has fallen by approximately 9% versus the dollar this year, reaching a new low last month.

In September, Japan spent approximately $20 billion to arrest the yen’s decline in its first intervention to stabilize the currency since 1998. This would account for roughly 19% of the reserve loss this year. Since February, a currency intervention in the Czech Republic has helped push down reserves by 19%.

“This is all part of the inventory of symptoms of the canary in the coal mine,” said Merk Investments’ Axel Merk, a chief investment officer. “There are cracks appearing. And the red flags will be flying at an increeasing rate. “While the size of the decrease is unprecedented, utilizing reserves to defend currencies is not a novel strategy. Central banks purchase dollars and hoard them in order to prevent currency appreciation as foreign capital flows in. In bad times, they dip into reserves to cushion the pain of capital flight.

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