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China Offers Rare Glimpse Into USD-Heavy FX Reserve Composition, Warns Of USD Depreciation Risk
One of the world's bigger financial mysteries: the official breakdown of the Chinese FX reserve balance, received a rare moment of transparency today when the China Securities Journal gave the official tally of the $2.45 trillion stockpile: 65% in dollars, 26% in euros, 5% in pounds and 3% in yen. Which means China holds about $1.6 trillion in dollars, and, courtesy of the (recent record) trade surplus, growing. This distribution is roughly in line with expectations and with the world average FX holdings. Nonetheless, the massive concentration of dollar positions prompted Hu Xiaolian, a vice governor with the
People's Bank of China to warn that depreciation loomed as a risk for
foreign exchange reserves held by developing counties. As Reuters quotes, "Once a reserve currency's value becomes
unstable, there will be quite large depreciation risks for assets," she
wrote in an article that appeared in the latest issue of China Finance, a
Chinese-language magazine published under the central bank. Most certainly this is a tacit warning for US monetary policy, which is, of course a paradox, since ongoing dollar depreciation is CNY-beneficial due to the ongoing (semi) peg. China would love to have its cake, eat it, and to export twice as much of it if possible.
More from Reuters:
[Hu Xiaolian] reiterated China's long-standing discomfort with a global financial system dominated by a single currency in the dollar.
"The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system," she said.
"A diversified international currency system will be more conducive to international economic and financial stability," she added.
To that end, developing countries must speed up reform of their financial markets, and China would work to promote greater cross-border use of the yuan, she said.
So are recent threats of diversification away from Treasuries overstated? Will China resume buying Treasuries after TIC data confirmed the biggest monthly outflow in recent history of Chinese UST holdings? It appears so, especially given that all the other currencies China could indirectly invest in are potentially of the bring of a rapid move lower.
There have been signs in recent months that Beijing has stepped up the pace of diversification of its foreign exchange reserves away from dollar assets.
Chinese net buying of Japanese debt has surpassed 1.7 trillion yen this year, far surpassing its record of 255.7 billion yen in 2005.
China has also raised holdings of South Korean bonds by 2.48 trillion won ($2.11 billion) in the first seven months of this year from 1.87 trillion won at the end of last year. However, Chinese investors only started buying South Korean bonds in the middle of 2009.
At the same time, China has slightly cut back its vast holdings of U.S. Treasuries, from $894.8 billion at the start of the year to $843.7 billion in June, according to the most recent data. China remains the biggest single holder of U.S. government debt.
But analysts have also warned against reading too much into the apparent shifts in the flow of cash from China. Like any investor with commercial interests in mind, Beijing has shown a readiness to shift its strategy depending on what it sees as good buys at the time.
The China Securities Journal laid out the prospects for a shift back to the dollar in the near term.
"It is unlikely that China will increase purchases of Japanese bonds in the coming months because the yen might weaken at any time," the newspaper said.
"China is very likely to increase purchases of U.S. Treasuries in September. The possibility for China to buy more Korean bonds can't be ruled out," it added.
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China bitchez!
Good morning maggots, happy friday :D
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Most excellent morning dish.
Thanks MsCreant :D
its been a while since i said hi. happy friday to ya, i still read your comments (quite good they are).
@}-,-`-
If the PRC got even a little interested in gold, watch out. Plenty of room to roll there, trade in a little of that green cash. Who knows but they may already be doing just that, on the sly so as not to roil markets.
The C.C.P. is a merciless Borg but I'll follow their lead on this trade if I can make a little $.
The PRC spends more on mining then energy, although that includes base metals but still...
Both sides, for different reasons, want to
'debase' the $, matter of time
umm not both side.
I bet China just realizes that Ben is making up the diffrence when China slows down buying or sells and nobody is noticing. So the purchasing power of the dollar is staying up while they go make high ball offers for Potash corp. ect.
Paradox? There’s nothing new about the “paradox” that a country (US, Japan, China, etc…) “benefits” from a stronger currency, in that it can pay less for what it imports, but doesn’t want that strengthening due to worries about a reduction in exports.
Yeah, that's why China desperately needs to create a strong inner market (and possibly a strong regional one as well) instead of the growing void left by the US. So it's a tightrope boogie between losing your largest importer(s) and trying not to bubble up your local consumer market.
So you shut down most of your manufacturing industry,get rid of import controls and the result is your shafted,nice.Then you allow tax havens so the people who have made from your own country being shafted can shift their wealth out.Tax the super rich at 99.9% over $1,000,000 and they would still have more money than they can ever spend.Fifth Columnist Bitchez ...............
Of course, this kind of jawboning may belie the fact that the Yuan is starting to have convertibility problems, and because of its peg, depreciates the dollar.
Strategy Bitchez !!
DOW chart update:
http://stockmarket618.wordpress.com
duplicate
China is so full of shit. They hate Japanese but will kill their mother for a Japanese automobile, they will have their workers working 12+ hours a day with no toilet breaks to the point they want to commit suicide, produce cow crap with a Chinese stamp on it, for idiots in America to buy, and Americans can't wait to run to Wal-Mart to buy the cow crap so they can turn around after they're halfway home because they just noticed the cow crap got a chip in it. Hey, yeah, how we gonna blame President Obama for this mass stupidity which has been going on (30+ years) since Reagan??? Oh F--K, We can't blame that on President Obama can we??? Let's do it anyway.
US produces dollar, chinese produces Yuan. If China accumulated a lot dollar,it is becuase the multinational corps sent a lot dollar to China. China uses the dollar as basis to issue a lot Yuan. The accumulated dollar by Chinese already have been used once domastically by Chinese. The next for Chinese is to use these dollar to buy US assets. since US congress does not allow Chinese to buy anything significant strategically, Chinese can only buy US treasuries. the Chinese can buy natural resources from other countries using US dollars. But remember the dollar has been used once to generate Yuan in their own country. If the multinationals are not to stop setting up factories and sending a lot chinese made goods back to US, this process will not stop. China will not know what to do with the dollar it received from US companies. It is a problem for both countries, but mainly sucking US wealth and benefiting Chinese. At same time, US companies' executives are making a killing, generating a small percentage of super rich Americans. These rich Americans, mainly the multinational corps can also buy any congress members, and even the presidency, to come up with laws protecting their own interests by keeping this process going. it is called globalization. This is purely horseshit. but it worked all the time. It even worked in Europe. It is the horse shit all along.
all these talks about dollar depreciating and chinese currency gettin stronger makes sense...but am a newbie in trading so was wandering if anyone can provide some strategy as to how to go about making a profitable trade...thanks
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