China’s forex reserves on track to reach $1 trillion

This month, the locomotive that is China’s stockpile of forex reserves surged ahead, to $954 Billion, with economists now predicting that the $1 Trillion mark will be breached in October. Export-dependent countries-notably China and Japan- have accumulated gargantuan reserves over the last decade, as an
alternative to allowing their currencies to appreciate. In most countries, Central Banks take the currency that foreigners used to pay exporters, and allow it to circulate in the economy. China and Japan have instead taken to hoarding their reserves in order to decrease demand and thud hold down the value of the Yuan and Yen, respectively. The Asia Times Online reports:

More foreign-exchange reserve demands more hedging money in local currency, which may weaken the controlling capacity of China’s monetary policy, impose pressure on the appreciation of the yuan, and exacerbate foreign-trade frictions.

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