China has the strongest trade balance in the world and annually increases its reserves exponentially.
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But its currency, the yuan, not a reserve asset and China has to invest a significant part of its surplus in US dollars.
He is trying to diversify by investing in natural resources in Africa and Latin America, and more recently his interest in gold has increased, but his continued underwriting of US government debt has exposed him to significant exchange rate risk.
In the late 1980s, the United States devalued its currency and, instantly, Japan saw its reserves reduced by 30%. A period called "Currency war" it quickly spread to all developed economies.
Should China Care About the Dollar?
Post author
Ramón Pedreño, BA in Business Administration and Master in Taxation, Partner in EMDER, Law and Business, and Strategic and Financial Advisor at IT&IS
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