Bloomberg.com: News: "China's Reserves `Politicized,' Says Bank of New York (Update2)
By Jake Lee
Aug. 8 (Bloomberg) -- China's $1.33 trillion foreign- exchange reserves are becoming a political tool in trade negotiations with the U.S., said Simon Derrick, Bank of New York's chief currency strategist.
China, the largest holder of U.S. Treasuries after Japan with $407 billion, plans to invest in other securities as it sets up an agency to boost returns on its investments. The government should use reserves as a ``bargaining chip'' with foreign governments, Market News cited a government researcher as saying July 30.
``It is easy to believe that China's foreign-exchange reserves are becoming politicized,'' London-based Derrick wrote in a research note dated yesterday. Recent comments from Chinese researchers ``carry an underlying threat.''
Xia Bin, director of the financial research department of the State Council, or cabinet, said overseas news publications described the reserves as a ``nuclear threat,'' and added the government should realize its potential, Market News reported.
China suggested it will sell Treasuries should the U.S. impose trade sanctions to force a yuan revaluation, the Daily Telegraph reported today, citing Xia and another Chinese researcher. Sales by China would send bond yields higher and possibly tip the U.S. into recession, the U.K. newspaper said."
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