Nov. 26 (Bloomberg) -- China’s foreign-exchange reserves face a “triple whammy” as inflation, oversupply and the “inevitable” decline of the dollar threaten to erode the value of its holdings of U.S. Treasuries, said Yu Yongding, a former adviser to the Chinese central bank.
China needs to divert its trade and investment surpluses away from U.S. debt if it is unable to reduce them, Yu, a member of the central bank’s monetary policy committee from 2004 to 2006, said in a speech in Melbourne last night. The nation, with the world’s largest foreign-exchange reserves of $2.3 trillion, is the U.S.’s biggest creditor, holding $798.9 billion of Treasuries as of September.
“Capital losses -- let alone obtaining decent returns -- seem inevitable,” said Yu, a member of the Chinese Academy of Social Sciences. “There is no question whatsoever that the U.S. dollar will go south, which started in April 2002 and, after a short interval, restarted in March 2009.”
The dollar traded near a 14-year low against the yen as the Federal Reserve signaled it will tolerate a weaker greenback and Russia’s central bank announced plans to add Canadian dollars to its reserves to reduce its reliance on the U.S. currency. Russia, holder of the world’s third-largest foreign currency reserves, and China this year suggested the world economy would perform better with an alternative reserve currency to the greenback.
A 10 percent slide in the greenback would cut the value of China’s dollar-denominated assets by about 1.5 trillion yuan ($220 billion), exceeding Chinese central government spending under the nation’s $586 billion stimulus plan, Yu said Oct. 28 at a forum in Beijing.
The U.S. dollar has declined against all 16 of the most- traded currencies this year. It traded at $1.5125 per euro as of 9:22 a.m. in Tokyo and has weakened 8.3 percent against the currency this year.
No comments:
Post a Comment