

China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings - chailatte
http://news.xinhuanet.com/english2010/china/2011-04/23/c_13842843.htm

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orijing
The title is misleading in multiple ways:

1\. It isn't China that is proposing to cut its foreign reserves. It's the
Chairman of the "China Everbright Group" (whatever that is), and the governor
of the central bank of China. What he says isn't necessarily China's policy
because historically there has been tension between the central banker, which
wants to use monetary policy to manage China's economy but has his hands tied
because of the influence of the exporters who want to keep the Yuan closely
pegged to the Dollar.

2\. China doesn't just hold $3T in USD holdings. No, it has $3T in foreign
reserves, which isn't all USD holdings.

China's actual policy may be completely different from what the governor of
the central bank has wanted for many years.

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dreyfiz
First of all, the headline is wrong. "China" has proposed no such thing as
that. _One_ private Chinese banker has proposed it.

China selling all its dollars at once would depress the dollar significantly.
That’s why China won’t do any such thing. It would be pointlessly wasteful to
set their own money on fire. Storing $3 trillion IOUs in a vault is already a
terrible way to use money. It would be better for that money to be in the
Chinese economy.

If China starts spending more of its trade surplus on helping people at home
instead of stockpiling useless green pieces of paper, all the better. This
will have an expansionary effect on the United States, since that’s where the
dollars will eventually be spent, and they’re not doing anyone any good being
frozen in China’s vault.

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tokenadult
What the lede of the article actually said: "China should reduce its excessive
foreign exchange reserves and further diversify its holdings, Tang Shuangning,
chairman of China Everbright Group, said on Saturday."

What the headline of the article actually was: "China should cap forex
reserves at 1.3 trillion U.S. dollars: China banker"

What the HN guidelines say about changing article titles: "You can make up a
new title if you want, but if you put gratuitous editorial spin on it, the
editors may rewrite it."

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richardw
China would love to be less exposed to the dollar. Unfortunately they buy USD
mainly to hold down the yuan. Selling USD would mean the yuan would
appreciate, reducing their competitive advantage and harming exports.

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espeed
I asked Cullen Roche (<http://pragcap.com/>), and this is what he said:

"China's USD reserves are a function of their trade surplus with the USA. If
they don't want to accumulate USD then they should allow their currency to
rise and start consuming more goods domestically while producing fewer goods
for the USA. But they don't want to do that because they have a growth target
to meet and their export growth to the USA plays a large role in that target.
So, their accumulation of reserves and US tsys is a function of their desire
to export goods and services to the USA. If they want lower growth then they
can stop accumulating USD's. But that isn't going to happen unless they find
growth elsewhere...Being the largest economy in the world means they will
remain a huge exporter to the USA."

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espeed
Could this be why the Pentagon has recently recommended to cut its own budget?
-- <http://news.ycombinator.com/item?id=2478908>

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dcosson
Any economists out there who can explain what this would mean? I imagine that
China selling 2/3 of their USD reserves would devalue the dollar pretty
significantly.

