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(People's Daily Online)

16:55, January 07, 2013

Purchasing power of China's foreign exchange reserves dropping steadily

About 70 percent of China's 3.3-trillion-U.S.-dollar foreign exchange reserves are U.S. Treasuries and dollar assets, and the rest are mostly euro assets. The loose monetary policy adopted by the United States and the European Union has led to the depreciation of the two currencies, and reduced the value and purchasing power of China's foreign exchange reserves.

"China's holdings of U.S. debt and dollar assets are suffering huge losses every day. The book value has not changed much, but their real purchasing power has dropped sharply and is still declining steadily. Maybe 10 years later, our over 3-trillion-U.S.-dollar foreign exchange reserves may be worth less than 300 billion U.S. dollars," economist Xiang Songzuo warned last year.

Xia Bin, director of the Financial Research Institute under the Development Research Center of the State Council, also said that as the U.S. dollar is likely to depreciate for a long time, China, which holds a large amount of U.S. government debt, is worried that the value of its huge foreign exchange reserves will continue to drop.

Vice Minister of Finance Li Yong said that the depreciation of the U.S. dollar and euro has made it more difficult for China to manage its foreign exchange reserves, and already caused heavy losses to the reserves.

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