All this huffing and puffing in the blogosphere about China dumping the dollar is hogwash. China does what’s best for China. And dumping the dollar would only devalue China’s massive greenback holdings. How much does China own? For the first time, China admitted yesterday to what was an open secret: It has 65% of its currency reserves in US dollars. No big surprise there. That’s in line with what was assumed. From Reuters…
BEIJING (Reuters) – China on Friday offered a rare glimpse into its foreign exchange reserves, confirming that they are overwhelmingly allocated in dollars, while a central banker said the mountain of cash could face depreciation risks.
The Chinese government’s currency reserves, the world’s largest such stockpile at $2.45 trillion, are held roughly in line with what was described as the global average: 65 percent in dollars, 26 percent in euros, 5 percent in pounds and 3 percent in yen.
The report in the China Securities Journal, an official newspaper, cited unnamed reserve managers.
The allocation of Chinese foreign exchange reserves is considered to be a state secret, but analysts have long estimated that about two-thirds are invested in dollar assets.
Separately, Hu Xiaolian, a vice governor with the People’s Bank of China, warned that depreciation loomed as a risk for foreign exchange reserves held by developing counties.
“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.
She 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.
Does China think that its dollar holdings are too much? Evidently not. China said it will probably be increasing its purchases of U.S. Treasuries in September.
