China's forex reserves soar to new heights

This month, China's already massive foreign exchange holdings swelled to a new all-time high of $711 Billion, having increased $100 Billion in the last 6 months alone. At this pace, it will not be long before the $1 trillion level is breached. As 'hot money' continues to flow into China, the government is forced to print Yuan, that will ultimately be exchanged for dollars. In order to prevent an outbreak of inflation and subsequent upward pressure on the Yuan, China's Central Bank must issue bonds and remove the new Yuan from circulation. In doing so, the country has built up gigantic holdings of dollars, held mostly in US treasury securities. It seems China will continue to sterilize capital inflows in order to prevent speculators from profiting from the revaluation of the Yuan, which many pundits believe is imminent. It is also worth noting, that as China purchases ever more US treasury securities, the US becomes ever more beholden to the Chinese government to maintain their holdings. The CCP government could do serious harm to the US economy, and to the value of the USD, if it were to ever to sell a significant chunk of the reserves. The China Daily reports:

The build-up in reserves increases the pressure on the People's Bank of China, the central bank, and its efforts to control monetary supply and inflation, and will fuel an already intense debate about whether Beijing should revalue its currency, the renminbi, now pegged to the US dollar.

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