Saturday January 14, 2006

China signals reserves switch away from dollar

peakoil.com (thread) -> news.ft.com :

China indicated it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds – a potential shift with significant implications for global financial and commodity markets. Economists estimate that more that 70% of the reserves are invested in US dollar assets, which has helped to sustain the recent large US deficits. If China were to stop acquiring such a large proportion of dollars with its reserves – currently accumulating at about $15bn a month – it could put heavy downward pressure on the greenback.

The announcement came from the State Administration of Foreign Exchange (Safe). It gave no more details about whether this meant a big shift in the investment strategy for Chinese reserves, which according to local press reports reached nearly $800bn at the end of last year and are expected by economists to near $1,000bn this year. Some economists have called on Beijing to use the funds to finance infrastructure investment and clean up state-owned companies, or to invest in higher-yielding assets rather than financing US borrowing.

According to Stephen Green, economist for Standard Chartered in Shanghai, although the language was "vague", the statement was the first time Safe has publicly indicated a shift away from dollar assets. "It is a subtle but clear signal that they are interested in moving away from the US dollar into other currencies, and are interested in setting up some kind of strategic commodity fund, maybe just for oil, but maybe for other commodities," he said.

(2006-01-14 12:50:33 SGT) [Biz] Permalink

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