(Reuters) - China should guard against risks from "excessive" holdings of U.S. assets as Washington could pursue a policy to weaken the dollar, a senior currency regulator said in comments published on a website that briefly pushed the dollar lower.
"We must be alert of economic and political risks in excessive holdings of U.S. dollar assets," Guan, head of the international payment department at SAFE said in the article on the website of China Finance 40 Forum, a Beijing-based think-tank of Chinese economists, bankers and officials. (www.cf40.org.cn)
"The United States has taken an expansionary fiscal and monetary policy to stimulate economic growth, and the United States may find it hard to resist the policy temptation of weakening the dollar abroad and pushing up inflation at home," he said.
The dollar, broadly lower on the day over market worries about the health of the U.S. recovery, edged down slightly further after Guan's remarks. It hit a one-month low against a basket of currencies and the euro and a record low versus the Swiss franc.
Chinese officials have blamed ultra-loose U.S. monetary policy for fuelling global inflation and asset bubbles but they tend to be less vocal about China's huge holdings of U.S. assets for fear of roiling the currency market.
At times though, top Chinese officials, including Premier Wen Jiabao, have publicly called on the United States to ensure the safety of Chinese holdings of U.S. assets.
The deficit was built up in reaction to the global financial crisis, when the Federal Reserve also relaxed its monetary policy. Rates are virtually zero and the central bank has pumped cash into the economy by buying bonds, a program that is due to end this month.
China has never published its holdings of U.S. Treasuries, but some economists have said as much as 70 percent of the country's foreign exchange reserves, which hit a record $3.05 trillion at the end of March, are parked in dollar assets.
so we intentionally weaken the dollar to make our exports more attractive to other countries.. but increase the cost to purchase imports from other countries. More exports equals more jobs right.. unfortunately everything we buy ends up costing more and you probably won't see companies handing out raises (all their cash holdings just lost value). At first I thought there's no way anyone would do this.. now I'm starting to actually consider the possibility. There has just been a vicious amount of bad news in the market recently and almost all future outlooks are negative.
Goldman Sachs just cut some of it's general market forecasts based on slower recovery than anticipated and increased costs of raw materials. They predict oil to be $120 per barrel when 2011 ends and $140 a barrel by the end of 2012.
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