If the yuan is expected to depreciate tomorrow, or next month, or next year, it basically makes sense to hold dollars rather than yuan until the move is over. That is why managed depreciations tend to burn through reserves. China has firsthand experience here—as it lost about a trillion dollars of reserves managing its depreciation in 2015 and 2016. That said, about $500 billion of the fall in reserves is explained by Chinese banks and firms paying down their external debts: the change in reserves net of China’s external debt is much smaller than the swing headline reserves. Even though some of the channels for outflows have subsequently been closed off and the level of domestic foreign currency debt has fallen, China faces a similar risk if expectations that the yuan is now a one way bet down are allowed to build.