Monday, February 22, 2010

Captain Obvious has a Chinese cousin...

From People's Daily:

Dumping could lead to domino effect and affect value of holdings

China can reduce its holdings of dollar assets, but should not "overdo" it as the country tries to adjust the structure of its dollar asset-dominated foreign exchange reserves, analysts said.

The country's foreign exchange reserves amounted to nearly $2.4 trillion by the end of last year - a third of the global total - raising concerns that the massive scale of the holdings could backfire.

About 70 percent of the reserves are dollar assets, according to various estimates by scholars, and the high proportion means that once the dollar's value slumps, China will incur huge losses.

But it is equally difficult for China to dump its dollar assets because that could lead to a domino effect on other investors and cause depreciation of China's holdings.

"China is in a dilemma," said Dong Yuping, economist at the Chinese Academy of Social Sciences.

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