Bloomberg is reporting that China’s Vice Chairman of National People’s Congress Cheng Siwei made a statement that China is shifting foreign-exchange reserves to stronger currencies.
“We will favor stronger currencies over weaker ones, and will readjust accordingly,” Cheng said in a speech before a conference in Beijing today. The dollar is “losing its status as the world currency,” Xu Jian, a central bank vice director, said at the same meeting.
Chinese investors reduced holdings of U.S. Treasuries by 5 percent to $400 billion in the five months to the end of August and the government set up an agency in September to seek higher returns on currency reserves. The U.S. dollar has weakened 4.7 percent against the yuan this year, while the euro has advanced 5.7 percent.
It will be interesting to see if this has any effect on the US economy. There have been rumors going around as far back as a year or two ago that China could cripple the US Economy by unloading their currency reserves in USD. Let’s not forget that American consumerism is the primary driving force behind China’s economic growth. Without American consumers buying goods, Chinese factories may be forced to slow down.
According to Marketwatch, this announcement by China has caused the prices of crude oil and gold to surge.
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