Friday, November 22, 2013

PBOC Says Boosting Reserves No Longer Beneficial

Hey, China. Can we get all those jobs back?

Posted By on Fri, Nov 22, 2013 at 11:00 AM

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The People’s Bank of China announced that the it doesn't benefit the country to increase its foreign-currency holdings. The yuan continues appreciate and China's foreign-exchange reserves surged $166 billion in the third quarter to a record $3.66 trillion.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting.

So who's going to take care of the U.S. government's debt? 

Less intervention and smaller gains in foreign-exchange reserves may damp China’s appetite for U.S. government debt. The nation is the largest foreign creditor to the U.S. and its holdings of Treasuries increased by $25.7 billion, or 2 percent, to $1.294 trillion in September, the biggest gain since February. U.S. government securities lost 2.6 percent this year, according to the Bloomberg U.S. Treasury Bond Index. (BUSY)

Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong, says that Yi's comments doesn't mean that the country will be cutting its holdings of U.S. government debt.

“They are probably going to keep their allocations reasonably stable unless there’s a big policy shift, but it means they will possibly be buying less at the margin,” (Tihanyi) said.

(via Bloomberg)

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