SHANGHAI - China has said that its forex reserves had shot past one trillion
dollars, state television made the announcement in a brief statement quoting the
State Administration of Foreign Exchange.
A currency trader counts Chinese
banknotes in Hong Kong. [AFP]
The unprecedented financial high came as no surprise to economists and
traders, who had widely estimated that Beijing's foreign reserves holdings
already hit US$1 trillion dollars late last month.
The nation's forex holdings reached US$987.9 billion at the end of September
and have been expanding at a rate of US$18.8 billion a month this year. At the
end of 2000, China's forex reserves stood at US$165.6 billion.
current levels, China accounts for nearly 20 percent of the world's foreign
exchange with about 70 percent of its holdings in dollars, according to the
latest note to clients from Brad Setser, head of research at Roubini Global
Economics in New York.
Like being a multi-millionaire, or in the case of China's central bank, a
trillionaire, hoarding such huge amounts of money has benefits but also
Among the positives are it provides security in times of economic trouble and
also helps defend against financial speculators, as many Asian countries learned
the hard way during the financial crisis in 1997 and 1998.
But a fast rise in forex can also over-stimulate the economy, experts warn.
"It doesn't really matter how big a country's foreign reserves are because
obviously the more you have the more stable you are in a crisis," said Stephen
Green, a senior economist at Standard Chartered in Shanghai.
"The problems come when they rise at a very fast rate. It's kind of like
shooting cocaine into the veins of the economy. It's a stimulant."
Amid considerable efforts to curb breakneck growth, the ballooning reserves
continue to raise questions about regulators' ability to execute China's gradual
currency reforms and administer effective economic policy.
China's economy, the world's fourth-largest, is growing at a formidable rate.
It expanded by 10.7 percent in the first three quarters, while in 2005 it grew
by 10.2 percent, according to official statistics.
In its latest move to cool the economy, the central bank Friday for the third
time this year ordered a 0.5 percentage point hike in commercial lenders deposit
reserve ratio to nine percent.
China has also raised interest rates twice this year aiming to brake the
surge in bank lending, already well past the US$2.5 trillion annual target.