Chungwoo: China talks up Diversification

A high-ranking official in China's government recently gave a
speech urging the Central Bank to (continue to) diversify its vast holdings of
foreign exchange, currently estimated at $1.4 Trillion and rising. The speech was atypical in its level of directness,
as Chinese officials tend to speak with a certain degree of circumspection if
they think there is any possibility that their comments will reach the
public. Specifically, he advocated making
a play on the current volatility in forex markets, by selling “weak currencies”
in favor of “strong currencies.” In
fact, the most recent data shows that China is already doing just that: its holdings of US government bonds have declined
even as its reserves have risen. The Financial
Times reports:



Although he later tried to play down his comments, saying he
had not been speaking in an official capacity, the damage was done.



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