China’s foreign-exchange reserves, the world’s largest, have reached a record US$ 2.5 trillion, adding fuel to complaints that the nation’s currency policy is undermining the global economic recovery because of Beijing’s refusal to revalue the yuan, deemed undervalued by many.
China’s currency holdings rose by about US$ 48 billion in the third quarter, according to the median estimate in a Bloomberg News survey. In a few days, the People’s Bank of China is expected to release the actual figure.
Beijing’s refusal to revalue its currency to correspond to its actual market value is generating more and more criticism. For years, Beijing has maintained a low yuan against other currencies to keep the cost of its exports low, and accumulate a large foreign trade surplus.
China is flexing its new-found muscle. And they are definitely looking out for their best interests:
Conversely, inflows of cash threaten to worsen inflation and increase asset-bubble risks in the Chinese economy, central bank Governor Zhou Xiaochuan said 8 October at a meeting of the International Monetary Fund. >From his point of view, China must avoid the “shock therapy” of excessive appreciation.
Indeed, Beijing has rejected calls for structural changes fearing the effects of a rising inflation (3.5 per cent in August). Risks of asset-bubbles in key sectors and estimated domestic unemployment rate of more than 9 per cent must be considered.
Nevertheless, the yuan has gained slightly more than 2 per cent since August. However, a much faster, 7-plus per cent depreciation of the US dollar in the same period has dwarfed yuan appreciation.
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