China could face a “tidal wave” of speculative selling in the coming months if its Foreign exchange (FX) reserves continue to fall, according to Société Générale strategist Albert Edwards.

The country has spent $800bn of its reserves since they peaked at $4trn in mid-2014, closing in on the International Monetary Fund's (IMF) recommended lower boundary of $2.8trn.

Edwards said China's reserves could fall below that level from the current total of $3.2trn in "the next few months", and the People's Bank of China (PBoC) could be forced to free-float the remnimbi, allowing markets to decide the currency's exchange rate.

The global strategist said: "We are then a few months from the $2.8trn level that the IMF believes is the lowest acceptable level.

He predicted that investors are likely to become increasingly transfixed with the rate of decline in China's FX reserves as it approaches the $2.8trn level, increasing selling pressure, even in the absence of actual currency weakness.

China moved to devalue the renminbi by almost 2% in August last year, sending shockwaves across global markets.

It further devalued its currency by 0.51% in January this year, the single biggest move since August, which sparked renewed stock market volatility.

China's stock market was suspended on three separate occasions in January - including its shortest ever trading session - after an emergency circuit breaker kicked in after the average price of listed Chinese equities dropped by 7%. The circuit breaker was subsequently dropped.

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