China to copy Singapore model of FX management

Having recently surpassed the $1 Trillion mark and showing no signs of abating, China’s swollen forex reserves are in dire need of some serious management. China’s de facto pegging of the Yuan to the USD has forced it to segregate its foreign exchange reserves rather than inject them back into its economy. Meanwhile, a 100 basis point decrease in US interest rates costs China as much as $10 Billion annually in lost returns. As
a result, China is now considering copying Singapore’s enormously successful model, in which Temasek, a government-funded company, makes billion-dollar investments in enterprises around the world. Whether a Chinese version of Temasek would lead to more or less USD-denominated investments is anyone’s guess, as Forbes reports:

China funded a study trip around Asia earlier this year looking at how various governments manage their reserves, including Singapore. The massive growth of China’s foreign exchange reserves has triggered calls for their holdings to be diversified and put to better use.

Read More: China considering Temasek-like vehicle for forex management