Saturday, March 4

China's foreign currency reserves too big?

From a member of an advisory body to the Chinese government:
"China's foreign exchange reserve hit 818.9 billion dollars at the end of last year but what China really needs should be no more than 250 billion dollars," economist Xiao Zhuoji told the Shanghai Securities Times.

"The current (holdings are) way above actual needs," he said.

Chinese reserves should be cut by more than two-thirds from current levels, said Xiao, who is also a member of the Chinese People's Political Consultative Conference (CPPCC), an advisory body to the government.

When the biggest buyer of your bonds becomes the biggest seller, yields are going higher.

If this were to happen, you would have the American central bank driving up the short end of the yield curve, and the Chinese central bank driving up the long end.

Not much left for market forces to do. Maybe the ideologies of governing officials in the two countries aren't so far apart after all, at least where government intervention is concerned.

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