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Monday, February 13, 2012

The Vexation of $3.2 trillion - to the Chinese Foreign Exchange Reserves (FER)


As every coin has two sides, it is also applied in Chinese FER.

With the Eurozone debt crisis spread to other Eurozone countries violently, (e.g. from BBC news on Feb 13, 2012, Greek bailout crisis and street violence has become a main topic among the Euro, further austerity measures about a 130bn euro bailout package was support by EU leaders.) and the US has not driven out the dark clouds of the debt default risk, Chinese finance ministers look like ambivalent and complicated, which is a kind of agitated, helpless and anxious.

As I have analyzed the liquidity, adequacy and diversity for Chinese FER in last blog, now I will talk about the annoyance for this large amount capital.

As we all know, from the $3.2 trillion US bucks, the dollar assets take account of about 70% (among them 1.16 trillion is US bonds), Euro assets is estimated as much as 20%. In addition, With the Standard & Poor downgraded the US Credit Rating to AA-Plus on April 18, 2011, Chinese Government was seriously worried about the security and capital maintenance (hedging) of the store reserves as the US Government Bond is the main investment and transaction products.

Furthermore, China, the largest foreign-government creditor should claim against the US government to solve out the structural debt problems and the US Congress to safeguard the National debt investment security and market well- functioning. So that reducing the volatility to the international financial markets and realizing diversified sources of investment strategy within the FER.

In a short, my conclusion is that:

“The US kidnap the global economy, and Chinese Foreign Exchange Reserves is the hostage.”


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