Thursday, October 15, 2009

China Foreign Reserves Continue to Surge Ever Higher: $2.27 Trillion

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Ding ding... more US treasure deposited into China's coffers. A new record. Hope they don't actually expect to collect on this.

(snickers are heard throughout the crowd)

  • China’s foreign-exchange reserves, the world’s biggest, surged as an economic recovery attracted speculative capital and a weak dollar boosted valuations of its yen and euro assets.
  • The holdings climbed about $141 billion in the third quarter to a record $2.273 trillion, the People’s Bank of China said today on its Web site. That was less than the unprecedented $178 billion gain in the second quarter.
  • The dollar’s decline this year has boosted China’s reserves by increasing the value of holdings of euro and yen assets. A trade surplus added $15.7 billion to the holdings in August and direct investment from abroad contributed $7.5 billion.
  • The inflows of capital may add pressure for asset and consumer prices to rise, complicating management of the economy as a “moderately loose” monetary policy helps to drive the nation’s rebound from the deepest slump in almost a decade.
  • The $141 billion increase in reserves in the third quarter was substantially larger than China's trade surplus for the quarter of $39.27 billion. Such a gap is usually taken as an indication that money also is coming in from other sources.
  • China's central bank adds to the reserves when it buys up foreign currency coming into the country -- either as export earnings or investment flows -- in exchange for the local currency, the yuan. Because China reliably runs a trade surplus and keeps its currency largely fixed against the U.S. dollar, the reserves have grown steadily.
  • Bigger reserves may sustain China’s demand for Treasuries, helping the Obama administration to make record debt sales to fund stimulus spending to revive economic growth. (yes! always a silver lining!)

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