China’s Currency Reserves May Top $2 Trillion for First Time

10th July 2009, Bloomberg

China’s foreign-exchange reserves probably topped $2 trillion for the first time, drawing attention to the difficulty the government faces in finding places to invest the world’s largest holdings.

The reserves climbed $67.8 billion to $2.022 trillion as of June 30 from three months earlier, according to the median estimate of six economists surveyed by Bloomberg News. That would compare with a $7.7 billion gain in the previous quarter. The central bank may release the number today or next week, based on the timing of previous announcements.

Central bank Governor Zhou Xiaochuan ruled out any sudden change in the management of the reserves last month after proposing that governments investigate setting up a supranational currency. Premier Wen Jiabao is concerned that China’s $763.5 billion of Treasury holdings may fall in value as the U.S. sells record amounts of debt to fund stimulus spending.

“There’s no obvious alternative for China to U.S. Treasury bills,” said Stephen Green, head of China research at Standard Chartered Plc in Shanghai. “The alternatives are limited for that much money.”

China’s reserves more than doubled in two and a half years as the trade surplus pumped cash into the economy, fueling claims that the nation’s currency is kept artificially low to help exporters. The International Monetary Fund may describe the yuan as “substantially undervalued” in a pending report, according to a person who has seen the draft.

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