As Rich as . . .
Sometime later this year, possibly before the end of summer, China’s foreign exchange reserves will surpass the equivalent of a trillion dollars. Has there ever been a country so rich since the fabled Croesus?
As of July, China’s foreign reserves amounted to $941.1 billion. As they are growing now at a rate of about $20 billion a month, the trillion mark should be passed before the leaves fall.
China has already left the other Asian financial powerhouses, such as Japan and South Korea, in the dust to hold the world’s largest accumulation of foreign exchange. US dollars make up between 70 and 80 percent of the total.
Much of this fabulous wealth is recycled, as everyone knows, into US treasury bonds. This helps keep interest rates in the US fairly low – so long as the Chinese keep buying. But now there are new rumbles of that dreaded word “diversification”.
China’s National Bureau of Statistics gave the world something to worry about when it said this month that the country should diversify its foreign exchange reserves away from the dollar.
The statement held out the worry that the value of the dollar may weaken, increasing the risk of foreign exchange losses in the currency reserves if China clings to the greenback.
Said EverBank, the only US commercial bank that deals in foreign currency at the retail level, in its daily report: “Anytime one hears of a country with the largest reserves questioning the dollar holdings it is significantly negative for the dollar.”
Of course, there have been vaguely worded threats to diversify out of the dollar from central bankers in China, Japan and Korea in the recent past, without any real changes in their buying patterns.
That is true enough, but who a few weeks ago would have thought that Israel would respond to a cross-border raid by launching a massive air attack on Lebanon?
As of July, China’s foreign reserves amounted to $941.1 billion. As they are growing now at a rate of about $20 billion a month, the trillion mark should be passed before the leaves fall.
China has already left the other Asian financial powerhouses, such as Japan and South Korea, in the dust to hold the world’s largest accumulation of foreign exchange. US dollars make up between 70 and 80 percent of the total.
Much of this fabulous wealth is recycled, as everyone knows, into US treasury bonds. This helps keep interest rates in the US fairly low – so long as the Chinese keep buying. But now there are new rumbles of that dreaded word “diversification”.
China’s National Bureau of Statistics gave the world something to worry about when it said this month that the country should diversify its foreign exchange reserves away from the dollar.
The statement held out the worry that the value of the dollar may weaken, increasing the risk of foreign exchange losses in the currency reserves if China clings to the greenback.
Said EverBank, the only US commercial bank that deals in foreign currency at the retail level, in its daily report: “Anytime one hears of a country with the largest reserves questioning the dollar holdings it is significantly negative for the dollar.”
Of course, there have been vaguely worded threats to diversify out of the dollar from central bankers in China, Japan and Korea in the recent past, without any real changes in their buying patterns.
That is true enough, but who a few weeks ago would have thought that Israel would respond to a cross-border raid by launching a massive air attack on Lebanon?
posted by Todd Crowell at 3:36 AM
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