With its beast of an economy ... its FE reserves surpass 1 trillion. Scary for all

[Libaax-Sankataabte]

BEIJING, China (Reuters) -- China has promised to use its foreign exchange reserves -- the world's largest -- in a responsible manner that will not destabilise global markets.

 

The reserves hit $987.9 billion at the end of September and have been expanding at such a clip that they either have surpassed $1 trillion, or will soon.

 

Asked at a regular news conference on Tuesday whether Beijing could provide assurances that it would not manage the reserves in a way that disrupts world markets, Foreign Ministry spokesman Liu Jianchao said:

 

"On this issue, China will act in a responsible manner and make its own active contributions to the protection of global financial stability."

 

Some government economists have recommended that China diversify its stockpile of reserves, much of which is parked in U.S. government debt, away from the dollar to guard against foreign exchange risks.

 

Analysts caution, however, that any major sell-off of dollar assets could cause the U.S. currency to plunge and send financial markets reeling and undercut the value of its remaining dollar assets.

 

Copyright 2006 Reuters. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

[Khayr]

Why is it scary for all?

 

Any economists in here....

[Ms DD]

This article could explain a little better.

 

http://articles.moneycentral.msn.com/Investing/JubaksJournal/TheFinancialTrapFacingTheUSChina.aspx

[NASSIR]

Originally posted by Khayr:

Why is it scary for all?

 

Any economists in here....

lol, not only Economist but also Finance. I can give you little explanation

 

 

Well, the government use reserves to control the curve of money supply. Reserves of hard currency are used by countries that peg their money to hard currencies like the dollar. They do this to protect their currency from getting devalued since that would slow down investments or people having strong faith in its currency. For instance, if the BOP or Balance of Payment calculation ratio is less than 0, that would translate the value of the domestic currency going down in comparison to the currency to which it was pegged under the category of fixed regime system. The government quickly intervenes by buying its currency with the hard currency in its reserves. Then the value of its currency goes up and investments and business activities would rise in favor of investors or potential investors. This economic system is called Open Market Operation

 

 

China's currency will be competitive and strong in the future. Its reserves will help its economy grow faster and faster.

[ElPunto]

^Khayr, Caamir gave you a more text book answer but here is the bottom line. If China uses it dollar reserves irresponsibly(ie. sell dollars big-time) it will plunge the debt-ridden, consumption obessesed US economy into a deep recession. And given that the US economy is the largest in the world - you can bet the whole globe will be affected adversely.

[Chimera]

China drop it

 

drop it like it's hot

 

psst psst saxiib Chino i heard US was calling you a p.ussy

 

a p.ussy i swear

 

he called you one

 

are you going to take that from him??

 

now drop it

 

drop it like it's HOT

 

let's see if US can still afford them foreign adventures after a 1930's type of recession

 

insha-allah insha-allah