Thread: China "worried" about US Treasury holdings

China has two choices; either sit on a pile of US dollars or buy US bonds that have a return and safety.

Since, they are going to sit on a pile of US dollars anyways (to keep their currency at the same rate as the US), than might as well buy bonds and get something in return for it.

Originally Posted by antimony

There seems to be a consensus on WAB and elsewhere that regardless of how much trouble holding on to US securities might be, China and other East Asian countries may always be relied on to take up more US debt. The rationale given is that doing would be in the interest in these countries, since it would essential boost US consumption of goods manufactured by the creditor nations, which have predominantly export driven economies.

I find this troubling, since it allows American policymakers to become lax about this issue. True, the eastern economies may not dump their dollar bonds, but they can certainly go slow on procuring more. The opinion that failing to absorb dollar debt can be harmful for export oriented economies may be true in the short term, but if these economies are able to drive up internal consumption (which would be a result of more people holding jobs) than that would be less of a problem in the future. Also, with intra-regional trade booming, exports to the US would have a less that usual share, and correspondingly, failure of US consumption may have less of an impact. Already, intra-regional trade account for more than 50% of total trade in Asia, with emerging countries increasing their share (source: www.imf.org).

The idea behind this post is not to say that China and other asian economies can now effectively decouple themselves from the US (they can't, atleast not now), but as a warning that US policymakers should not grow too complacent about accepting China as a ready market for US securities.

I agree. America is now reliant on China to pick up US securities at an accelerated rate, while at the same time devaluing the dollar. When does China simply stop throwing good money after bad?

Originally Posted by Donnie

this was the exact concern i had, at what point will china realize they are in a hole, and stop digging?

BTW Xi no offence to you, but i cant stand that sham wow guy, i drives me nuts every time i see your post

Don't, I changed it a poster of Comrade Stalin voting.

Originally Posted by Parihaka

I agree. America is now reliant on China to pick up US securities at an accelerated rate, while at the same time devaluing the dollar. When does China simply stop throwing good money after bad?

maybe PM Wen should release another "worry"

China to Keep Buying Treasuries, Top Official Says (Update1)
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By Dune Lawrence and Kevin Hamlin

March 23 (Bloomberg) -- China’s top foreign-exchange official said the nation will keep buying Treasuries and endorsed the dollar’s global role, supporting the U.S. as the Obama administration increases spending to revive growth.

Treasuries form “an important element of China’s investment strategy for its foreign-currency reserves,” Hu Xiaolian, director of the State Administration of Foreign Exchange, said at a briefing in Beijing today. “We will continue this practice.”

Hu’s remarks came as Treasuries extended the worst start to a year since 1996 and less than two weeks after Premier Wen Jiabao said he was “worried” about the safety of the securities. U.S. President Barack Obama is relying on China to keep buying Treasuries as his administration sells record amounts of debt to fund a $787 billion stimulus package.

“China’s so heavily invested in U.S. Treasuries that to stop buying now would have a negative impact that would see China’s investments fall in value,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “It’s pretty important for the U.S. that the main buyers keep making purchases.”

The yield on the 10-year note rose two basis points to 2.66 percent as of 9:25 a.m. in London, according to BGCantor Market Data. The 2.75 percent security due in February 2019 fell 6/32, or $1.88 per $1,000 face amount, to 100 25/32.

Expanding Rescue

The Obama administration will announce details of a plan today to expand the $700 billion rescue of the financial system that will rely on enticing private investors to buy the troubled assets clogging banks’ balance sheets.

China, the biggest foreign holder of U.S. debt, increased its Treasury holdings by 46 percent in 2008 and holds about $740 billion of the securities, according to Treasury Department data.

Wen called March 13 for the U.S. “to honor its promises and to guarantee the safety of China’s assets.”

China was “worried” about its holdings of Treasuries, he said at a press conference after the annual meeting of the legislature, the National People’s Congress.

Yu Yongding, a former adviser to the central bank, said Feb. 10 that the nation should seek guarantees that its Treasury holdings won’t be eroded by “reckless policies.”

Today’s briefing in Beijing was ahead of the Group of 20 nations summit due to start April 2.

‘Road Map’

Chinese officials emphasized the importance of combating protectionism and reforming international financial institutions. Vice Foreign Minister He Yafei called for a “clear timetable and road map” for changes to global bodies, including giving developing nations a larger voice.

The international community should focus on the supervision of the global monetary system rather than debating a replacement for the dollar as the reserve currency, regulator Hu said.

That comment came as a Reuters report said a United Nations panel will next week recommend replacing the dollar and Chinese central bank Governor Zhou Xiaochuan said that the International Monetary Fund should aim in the long term to create a non- sovereign reserve currency.

Reuters cited Avinash Persaud, a member of the U.N. panel. Zhou’s comments were in a speech posted on the central bank’s Web site.

Treasuries declined for a third day before a record sale of $98 billion of notes this week and as gains in stocks damped demand for government securities. The 10-year note gained earlier after Hu’s comments.

To contact the reporters on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net; Kevin Hamlin in Beijing at khamlin@bloomberg.net

Originally Posted by xinhui

Don't, I changed it a poster of Comrade Stalin voting.

Bring back Vince the Sham WOW guy!!!

LOL Vince rules.



China calls for new global currency

By JOE McDONALD – 3 hours ago

BEIJING (AP) — China is calling for a new global currency controlled by the International Monetary Fund, stepping up pressure ahead of a London summit of global leaders for changes to a financial system dominated by the U.S. dollar and Western governments.

The comments, in an essay by the Chinese central bank governor released late Monday, reflect Beijing's growing assertiveness in economic affairs. China is expected to press for developing countries to have a bigger say in finance when leaders of the Group of 20 major economies meet April 2 in London to discuss the global crisis.

Gov. Zhou Xiaochuan's essay did not mention the dollar by name but said the crisis showed the dangers of relying on one nation's currency for international payments. In an unusual step, the essay was published in both Chinese and English, making clear it was meant for an international audience.

"The crisis called again for creative reform of the existing international monetary system towards an international reserve currency," Zhou wrote.

A reserve currency is the unit in which a government holds its reserves. But Zhou said the proposed new currency also should be used for trade, investment, pricing commodities and corporate bookkeeping.

Beijing has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any steps in response to the crisis that might erode the value of the dollar and Beijing's estimated $1 trillion holdings in Treasuries and other U.S. government debt.

The currency should be based on shares in the IMF held by its 185 member nations, known as special drawing rights, or SDRs, the essay said. The Washington-based IMF advises governments on economic policy and lends money to help with balance-of-payments problems.

Some economists have suggested creating a new reserve currency to reduce reliance on the dollar but acknowledge it would face major obstacles. It would require acceptance from nations that have long used the dollar and hold huge stockpiles of the U.S. currency.

"There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management.

Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar.

"It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said.

China has pressed for changes to give developing countries more influence in the IMF, the World Bank and other finance bodies. G20 finance officials issued a statement at their last meeting calling for such changes but gave no details of how that might happen.

Russia also has called for such reforms and says it will press its case at the London summit.

Zhou said the new currency would let governments manage their economies more efficiently because its value would not be influenced by any one nation's need to regulate its own finance and trade.

"A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity," Zhou wrote. "This will significantly reduce the risks of a future crisis and enhance crisis management capability."

Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies — the dollar, euro, yen and British pound.

"The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," Zhou wrote. "The allocation of the SDR can be shifted from a purely calculation-based system to one backed by real assets, such as a reserve pool, to further boost market confidence in its value."

___

Chinese central bank (in Chinese): http://www.pbc.gov.cn

Chinese central bank (in English): http://www.pbc.gov.cn/english

China May Press G-20 to Guard Its U.S. Assets, Researcher Says
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By Li Yanping

March 24 (Bloomberg) -- China’s leaders may press at the Group of 20 summit for specific steps to protect its more than $1 trillion of dollar assets as U.S. fiscal policies risk sparking a “currency war,” a senior Chinese researcher said.

The dollar weakened after the Federal Reserve said March 18 it would buy as much as $300 billion of Treasuries and the U.S. this week outlined plans to buy as much as $1 trillion of illiquid bank assets.

U.S. purchases of Treasuries are “irresponsible” because they may weaken the dollar, Li Xiangyang, of the government- backed Chinese Academy of Social Sciences, told a forum in Beijing today. “Chinese leaders are likely to articulate their concern to their U.S. counterparts strongly and ask for specific measures.”

President Barack Obama is relying on China to continue its purchases of Treasuries as the government seeks to fund a $787 billion stimulus package and a deficit this year forecast to reach $1.5 trillion. China’s President Hu Jintao is due to meet with his U.S. counterpart at the G-20 summit in London next week.

“China is a hostage,” said Andy Xie, an independent Shanghai-based analyst who was formerly Morgan Stanley’s chief Asia economist. “China is America’s bank and America basically says there’s nothing you can do to me. If I go down you don’t get paid.”

Treasuries have handed investors a loss of 1.6 percent in yuan terms this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index.

Credit Losses

Demand for the relative safety of Treasuries has been supported in the past two years as finance companies reported $1.2 trillion in credit losses. China boosted holdings of government debt as it lost more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007.

Hu Xiaolian， the head of the nation’s currency regulator, said yesterday that China will continue to buy Treasuries and endorsed the dollar’s global role.

Fed purchases of Treasuries are “irresponsible” because of the dollar’s role as a global reserve currency and the possibility that other nations will devalue their currencies should the dollar keep falling, Li said.

CASS is a government-backed research agency that advises policy makers. Li, the deputy director of the CASS Institute of World Economics and Politics in Beijing, said he was previously involved in China’s planning for G-20 meetings.

Reserve Currency

His comments came after central bank Governor Zhou Xiaochuan urged the International Monetary Fund to work on creating a “super-sovereign reserve currency” that would be stable and independent of individual nations. Zhou’s article was posted on the central bank’s Web site yesterday.

About $1 trillion to $1.2 trillion of China’s foreign- exchange reserves, the world’s biggest, are invested in U.S.- dollar assets, Li said, without citing a source. China’s Treasury holdings climbed 46 percent in 2008 and now stand at about $740 billion, according to U.S. government data.

Li, too, described China as a “hostage.”

“Previously, Chinese officials and academics always felt they had the upper hand psychologically in negotiating with the U.S., as they could easily threaten not to buy U.S. Treasuries any more,” said Li. “Now, that bargaining chip has been taken away.”

The Obama administration sought this month to ease Chinese concern about the security of its investments, reiterating pledges to cut the U.S. budget deficit in half in four years.

China needs more concrete assurances, Li said, without adding what specific measures the U.S. could offer.

The size of China’s reserves makes it hard to diversify away from dollar assets without causing turbulence in the currency and commodity markets, Li said. The reserves “are such a big chunk that it’s too difficult to turn them around,” he said.

Premier Wen Jiabao called on March 13 for the U.S. “to honor its promises and to guarantee the safety of China’s assets”.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net
Last Updated: March 24, 2009 09:44 EDT

Bigger role at IMF for China

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Peter Wilson, Europe correspondent | March 25, 2009
Article from: The Australian

GORDON Brown has boosted Kevin Rudd's hopes that China will be given a greater role in the global financial system by hinting that some European nations have privately agreed to surrender some of their voting rights in the International Monetary Fund.

The British Prime Minister, host of next week's G20 summit in London, made clear during a briefing at 10 Downing Street yesterday that progress had been made behind the scenes to clear the way for a greater role for China.

Mr Rudd has backed the claims of China, which has only 3.7 per cent of the voting rights in the IMF compared with Europe's 32per cent, despite Beijing's rapid rise in recent years to be one of the world's most important economic powers.

Asked by The Australian whether any European nations had already been persuaded to give up some of their rights, Mr Brown did not give a direct answer but expressed confidence about the outcome.

"It is pretty clear that the global economy's institutions have got to reflect what is happening in the global economy," he said.

Delivering a pre-summit briefing for one journalist from each of the G20 member nations, Mr Brown added: "I think there is a general agreement that we need greater representation from those countries that have grown over the past few years and there has to be a recognition of what has been happening to the global economy."

As with most international summits, many of the London meeting's results have already been decided or will be thrashed out before the leaders gather on Thursday week.

At the summit, the IMF will be restructured and given a major increase in emergency funding, and there will be a crackdown on tax havens.
http://www.theaustralian.news.com.au...-25837,00.html

Originally Posted by gunnut

Bring back Vince the Sham WOW guy!!!

are you a nut? oh, yah, nevermind

Originally Posted by xinhui

Don't, I changed it a poster of Comrade Stalin voting.

hah! serves me right.

A reserve currency is the unit in which a government holds its reserves. But Zhou said the proposed new currency also should be used for trade, investment, pricing commodities and corporate bookkeeping.

...

Some economists have suggested creating a new reserve currency to reduce reliance on the dollar but acknowledge it would face major obstacles. It would require acceptance from nations that have long used the dollar and hold huge stockpiles of the U.S. currency.

Easy. We'll just change the US dollar to World dollar. Problem solved.

Originally Posted by gunnut

Easy. We'll just change the US dollar to World dollar. Problem solved.

would that realy work, what would happen if the world just pegged the dollar?

Originally Posted by Donnie

would that realy work, what would happen if the world just pegged the dollar?

I was just being facetious.

The world has agreed on a reserve currency and it is the dollar. Forcing everyone to adopt a new reserve currency will wreak havoc in the financial market.