China accumulates 2 triillion in US dollar reserves
This gargantuan build-up of forex reserves by China has strangely received very little attention of economists, policy analysts, currency traders and, of course, geo-strategists around the world. … After adjusting for all known sources of reserve accretion, experts conclude that approximately an excess of $200 billion could have flown into China as ‘hot money’ — read inexplicable flow of funds — in this period. The Economist — in one of its issue in recent months — quotes Michael Pettis, an economist working in China, who explains how and why hot money flows into China. According to Pettis, hot money comes into China when companies overstate FDI and over-invoice exports.
In effect, is this hot money flowing into China in anticipation of this revaluation of the yuan? Or is it a simple case of China maintaining trade competitiveness through a weak yuan? Or is there something more to it than meets the eye? Are the Chinese acquiring the dollars with some sinister motive? In effect, has the Chinese strategy of a weak currency over the years the un-stated policy of dynamiting the American economy? … Countries that hold large US dollar denominated forex reserves have a powerful tool in their arsenal — they could wreck American financial markets at a mere click of a mouse by selling their dollar holdings. Imagine China with a holding nearly $2 trillion worth of treasury bonds seceding to sell the same overnight. … And that completely alters the existing global order.