China currency reserves may hit $ 2.5 trillion, stoke tensions

Tuesday, 12 October 2010 23:26 - - {{hitsCtrl.values.hits}}

BEIJING: China’s foreign-exchange reserves, the world’s largest, may have climbed to a record $2.5 trillion, adding fuel to complaints that the nation’s currency intervention is undermining the global economic recovery.

Currency holdings rose about $48 billion in the third quarter, according to the median estimate in a Bloomberg News survey of eight economists. That would compare with a $7 billion gain in the previous three months, the smallest increase in 11 years. The central bank may release the number this week.

“The massive build-up of the foreign-exchange assets would only give more ammunition to those China critics who call for a rapid appreciation of the yuan,” said Tom Orlik, a Beijing-based analyst for Stone & McCarthy Research Associates, who formerly worked for the UK Treasury.

US Treasury Secretary Timothy Geithner says a stronger yuan would stimulate demand in China, which replaced Japan in the second quarter as the world’s second-largest economy.

Inflows of cash threaten to worsen inflation and asset-bubble risks in the Chinese economy and central bank Governor Zhou Xiaochuan said Oct 8 that the nation needs to avoid the “shock therapy” of excessive appreciation.