China's record draw on its foreign-exchange reserves is proving to be a catalyst for exaggerated price swings in currency markets around the world.

The People's Bank of China slashed its holdings by the most ever last quarter to prop up the yuan after its shock devaluation in August. It's burned through close to half a trillion dollars since the middle of last year, equivalent to twice the size of Greece's economy and draining a key source of liquidity from world markets.

Swings in exchange rates responded by averaging the highest last month since 2011. And the pressure shows few signs of abating as central banks elsewhere in the developing world follow China's lead amid a commodities rout and the prospect of a dollar-boosting increase to U.S. interest rates.

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