The Surprise Rise In China's Forex Reserves
Forbes.com reported that China added $135.7 billion to its reserves between January and March, taking the total to $1.2 trillion. The increase was more than half the total growth of $247.3 billion in reserves during 2006. Economists calculate that the trade surplus and foreign direct investment should have boosted reserves by $73 billion in the quarter. The other $63 billion was explained away by Bank of China. One was that major state banks raised $42 billion in offshore IPOs in the past couple of years. The funds have flowed back into China in expectations of yuan appreciation. The rest may be the unwinding of currency swaps between the central and commercial banks in which case the central bank gives out US Treasury Bonds to the commercial banks. The commercial banks in turn are putting money into foreign bonds as a result of the falling value of US Treasuries and last year's clampdown by the authorities on domestic lending to avoid an overheated economy. Yet another explanation was that the central bank wants to pull back onshore as much as it can of the country's foreign currency holdings ahead of the establishment of a new state investment fund. The fund is intended to put $200 billion to $400 billion of China's foreign exchange reserves to work to earn better returns than it does from investing in U.S. Treasuries.
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Posted, in International, by Simone Yu on April 20, 2007 | Permalink
Comments
China is one of the biggest economy of the world. Everything in China is effecting the rest of world. As the article says the cash in China is about 42 billion usd. This is just cash only. Great money. This means if China says we are sending all these money back to USA, USA economy may crash down.
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