China pressed the United States to take “responsible” measures to boost market confidence in the dollar and US government debt on Wednesday, underscoring investor worries that Washington could default on its debt. The urging from China’s currency regulator came as US leaders tried to hammer out an 11th-hour deal to raise a $14.3 trillion debt ceiling for the United States before it runs out of money to cover all its bills on August 2. “We hope the US government will take responsible policies and measures to boost global financial market confidence and respect and protect the interests of investors,” the State Administration of Foreign Exchange said. The remarks, published on its website, were carried as a response to queries on whether Beijing will cut its investment in US Treasuries following through from rating agencies saying they may cut the United States’ credit rating.
The agency, which manages China’s $3.2 trillion in foreign exchange reserves, the world’s largest, said its buying and selling of Treasuries were part of normal investment operations. Due to the size of China’s reserves, Beijing has few choices but to invest the bulk of the stash in US Treasuries, by far the world’s biggest and most liquid asset class. About two-thirds of China’s reserves are estimated to be invested in dollar assets, ranking Beijing as the biggest creditor to the United States.
While China is keen to cut its reliance on the dollar by investing its reserves in other assets, its currency regulator acknowledged the crucial role of Treasuries by saying it is “an important investment product for both US domestic and international institutional investors.” The currency regulator also argued it cannot invest too much of China’s reserves in commodities such as oil, gold and silver these markets are too volatile and small.
“Chinese companies and households consume a large amount of gold and crude oil,” it said. “If we use much of our foreign exchange reserves to invest in such areas, we could push up market prices, which may affect our people’s consumption and economic development.”
