China: Don't Panic, We'll Keep Buying Tons Of Dollars

Shanghai Port

The Chinese government has come out to remind the market that it will keep buying dollats as its core currency reserve holding, even though it believes the dollar will depreciate in the long term.


WSJ: “The composition remains as it was before. There is no major change” in the reserves, said Wang Xiaoyi, vice director of SAFE, which oversees the reserves. “We are not making any big adjustments in direction. Our operations are still as usual, meaning they follow the existing forex reserves management goal,” he said on the sidelines of an economic forum in Beijing.

Mr. Wang said the “depreciation of the U.S. dollar is a long-term trend.” In the near term, however, the dollar’s key role as the global reserve currency won’t change, SAFE said in the book.

This reminds us of the poin that China doesn’t buy dollars in order to make money off them as an investment. They buy them in order to maintain the current global imbalance whereby the yuan’s value is held down, over-stimulating U.S. consumer demand. Thus even if the dollar is a depreciatiing asset for them to hold, it’s fine since China earns its return on investment in other ways, mainly via the export stimulus a weak yuan creates.

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