China's forex reserves over 7 times that of India

Discussion in 'Economy & Infrastructure' started by LETHALFORCE, Apr 12, 2009.

  1. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    http://economictimes.indiatimes.com...9-times-that-of-India/articleshow/4388439.cms

    China's forex reserves over 7 times that of India

    NEW DELHI: China's central bank
    said on Saturday that its foreign exchange reserves rose 16 percent year-on-year to $1.9537 trillion by the end
    China's reserves, already the world's largest, increased by $7.7 billion in the first quarter - $146.2 billion less than the same period last year, AP reported quoting the People's Bank of China's Web site. In case of India, inflows by foreign institutional investors (FIIs) and a weak dollar have pushed up forex reserves by $2.8 billion.

    Easing credit growth has also resulted in a lower growth in money supply. This is because a dip in loans slows down the ‘multiplier effect’ , which occurs when money lent by a bank is spent and comes back to the banking system in the form of new deposits creating fresh money.

    Analysts believe China holds up to 70 percent of its foreign reserves in US dollar-denominated assets, including Treasury securities.

    According to figures released by the Reserve Bank of India foreign currency assets rose $3 billion, the value of gold in reserves dipped $169 million. The level of special drawing rights - currency with the International Monetary Fund (IMF) - remained unchanged during the week.

    China's reserves have ballooned as the central bank buys up dollars generated from its huge trade and influx of foreign investment.

    While China's economy has slowed due to a plunge in trade and a slump in the domestic real estate industry, recent data show the drop eased in March.

    Beijing has taken steps to hold down the price of exports by cutting taxes on exporters and stopping the rise of China's tightly controlled currency, the yuan, against the U.S. dollar. Economists say both steps could strain relations with trading partners if China is seen to be competing unfairly.

    AP stated that Chinese exports fell 17 percent in March from a year earlier, the fifth straight monthly decline but less severe than February's 25.7 plunge, the sharpest in a decade, the customs agency reported Friday. It said trade "showed clear signs of improvement."

    Imports fell by 25.7 percent, widening the Chinese trade surplus to $18.6 billion from February's $4.8 billion gap.

    Back home, the total stock of money - cash currency and deposits - in the system rose Rs 1,01,8906 crore, or 2.2%, during the fortnight ended March 27 to touch Rs 47,57,905 crore. While currency with the public dipped Rs 3,939 crore, demand and term deposits rose Rs 48,584 core and Rs 58,985 crore, respectively.
     
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  3. SATISH

    SATISH DFI Technocrat Stars and Ambassadors

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    They have to maintain a good exchange rate as to keep the Dollar value high or else there will be an increase in the cost of their product. Theirs is an export oriented economy. So this is no big deal. And raise in demand of Dollar is necessary.
     
  4. Yusuf

    Yusuf GUARDIAN Administrator

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    I think the Chinese will land in a soup sooner or later. They have bought US treasury bills by the Billions. The US will someday say thank you very much and show the thumb. China will always be at the mercy of the US if it tries to act too smart with uncle Sam
     
  5. SATISH

    SATISH DFI Technocrat Stars and Ambassadors

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    Yusuf you never mess with your biggest customer base. If the US economy sneezes China will be the first to catch a cold.
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    China has about 1 trillion in US bonds and treasury (in addition to their cash reserves) for which there is no market currently and the yield is 0%.The value for the dollar has decreased over 40% in the last 2 years.
     
  7. Soham

    Soham DFI TEAM Senior Member

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    Bloody good for them.
    Reserving to the point of instability is not the most intelligent thing one can do.
    When US falls, it takes China along.
     
  8. Yusuf

    Yusuf GUARDIAN Administrator

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    Precisely my point. China is sitting on a pile of rubble of a trillion dollars. It's going to lose big time one way or the other.
    Just for general info, Indias forex reserves are bigger than US
     
  9. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    This is why they want a new IMF currency because they are a slave to the dollar and worthless US debt.
     
  10. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    India's central banks have made the smart move of diversifying their reserves into EUROS etc...
     
  11. SATISH

    SATISH DFI Technocrat Stars and Ambassadors

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    Sir but the Indian banks have around $500 billion worth of money. Does this also come under reserves?
     
  12. Yusuf

    Yusuf GUARDIAN Administrator

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    No one is going to agree to use RMB as international currency. It doesn't have so many friends yet. Nor the economic and military clout yet
     
  13. SATISH

    SATISH DFI Technocrat Stars and Ambassadors

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  14. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    satish it is a medium sized reserve; but it is better to have the hard currency than worthless debt also India is free to buy and sell the dollar unlike China who just by the size of the transaction would have to consult US government and wait for a buyer or US to buy in their illiquid position by issuing new debt that China may have to buy. In short USA has China by the throat. One last point any sale would further devalue the dollar or the debt instrument.
     
  15. Yusuf

    Yusuf GUARDIAN Administrator

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    Let's then ponder why China bought the treasury bills in the first place? Any economic pandit here or someone with further knowledge?
     
  16. Pintu

    Pintu New Member

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    China is an export oriented economy , therefore, in a simple word, when demands for the export of its goods dries down it will face the heat. In that situation we will see that the Trade Surplus is somehow falling.

    However, I am not a student of economics, I may be wrong in my assessment.

    Regards
     
  17. Daredevil

    Daredevil On Vacation! Administrator

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    The reason for buying american debt (treasury bills) is to keep their Yuan artificially low with respect to dollar. If you have too many dollars in market that will devalue the dollar and appreciate the value of other currencies wrt to dollar including Yuan. So, the smart chinese bought the excess dollar denominations in the market through the treasury bills and kept the Yuan value artificially low to continue the unabated Chinese exports to US and other countries.
     
  18. Yusuf

    Yusuf GUARDIAN Administrator

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    As far as my knowledge goes, China pegs the value of it's currency wrt the dollar. So the question of buying treasury bills for manipulation of currency prices.
    Besides by buying them, they should have known that they are digging a hole for themselves
     
  19. Daredevil

    Daredevil On Vacation! Administrator

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    No one including the Chinese expected this global economic recession. They were happy to buy the American debt and in turn fueling cheap credit to Americans who in turn bought Chinese goods. This cycle continued till the global economic recession broke it.
     
  20. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    if China wants trade with USA and most favored nation trade status they have to buy the treasury or USA will replace them that simple, samething happened to Japan and they still have not recovered, China had Japan and Korea as examples and did not learn so USA placed them in the same foxhole
     
  21. Yusuf

    Yusuf GUARDIAN Administrator

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    Heads I win, tails you loose?
     

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