Wednesday, May 20, 2009

Chinese reserves

There is a lot of attention on Chinese huge reserves of US dollars. RBC strategist Brian Jackson suggests that the Chinese authorities are trying to hedge the potential losses from a depreciation of the US dollar against the renminbi by buying commodities. This does a number of things: it provides a hedge (because the value of the commodity rises if the US dollar falls in value); it takes advantage of low current commodity price levels; it creates a stockpile in preparation for future economic recovery. The major risk is that world economic recovery is slower and storage costs eat into the gains.

Here is the Bloomberg story.

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