Forex reserves diversification underway

10:43, August 17, 2010      

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Following a large cut of its U.S. Treasury bonds, also known as T-bonds, holdings in May, China trimmed its holdings of U.S. debt by 24 billion U.S. dollars in June, according to data released by the U.S. Treasury Department Monday night.

Meanwhile, China has increased its holdings of Japanese government debts. Japan's Ministry of Finance issued a report on August 9, saying that China's net purchase of the country's government debts was 456.4 billion yen (around 5.3 billion U.S. dollars).

Since last October, there has been a downward trend in China's U.S. debt holdings. Only in March and April 2010 did China increase its U.S. T-bonds holdings slightly.

By the end of June, China holds altogether 843.7 billion U.S. dollars worth of U.S. debts, 94.6 billion U.S. dollars lower than the peak in last September.

Today's Shanghai Securities News quoted an unidentified official from China's State Administration of Foreign Exchange (SAFE) that China focuses on the security, liquidity as well as value retention and increment of its foreign exchange reserves.

"China will diversify its foreign exchange reserves investment in the global financial market based on its own demand and judgment," the official said.

Chen Bingcai, an expert with China's National School of Administration, noted that China's cut of U.S. T-bonds holdings is related to the trend of the dollar.

"The weak dollar, which is the result of the Fed's quantitative easing policies, will affect the returns of China's dollar-denominated financial assets," Chen explained.

SAFE emphasized that the U.S. debt market was important to China despite recent cuts of U.S. T-bonds holdings.

"Either an increase or a cut of U.S. debts holdings are normal market actions," the official from safe said.

Japan and Britain, the second and third largest holders of U.S. debts, increased their holdings by 16.9 billion U.S. dollars and 12.2 billion U.S. dollars, respectively.

By People's Daily Online


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