Nov. 26 (Bloomberg) -- China’s foreign-exchange reserves face a “triple whammy” as inflation, oversupply and the “inevitable” decline of the dollar threaten to erode the value of its holdings of U.S. Treasuries, said Yu Yongding, a former adviser to the Chinese central bank.
China needs to divert its trade and investment surpluses away from U.S. debt if it is unable to reduce them, Yu, a member of the central bank’s monetary policy committee from 2004 to 2006, said in a speech in Melbourne last night. The nation, with the world’s largest foreign-exchange reserves of $2.3 trillion, is the U.S.’s biggest creditor, holding $798.9 billion of Treasuries as of September.
“Capital losses -- let alone obtaining decent returns -- seem inevitable,” said Yu, a member of the Chinese Academy of Social Sciences. “There is no question whatsoever that the U.S. dollar will go south, which started in April 2002 and, after a short interval, restarted in March 2009.” --
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