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China is Earning Negative Carry

China's foreign exchange reserves
currently approximate $1.5 Trillion, the majority of which is
denominated in USD.  Moreover, the Central Bank of China earns
interest on every Dollar it adds to its reserves but must also pay
interest on every RMB note that it must issue to offset the Dollars.
Since the Fed began easing monetary policy, the amount of carry (the
difference between what the Central Bank receives on Dollars and pays
on RMB) earned by the Central Bank has completely inverted, such that
it now loses 250 basis points on average for each Dollar exchanged
for RMB. 

Based on the rate at which China is currently accumulating
reserves, this amounts to between $5 Billion and $10 Billion per
month, depending on which method of accounting is utilized.
Furthermore, this trend has been exacerbated because China is
accumulating reserves at a faster rate than its economy is growing.
Some analysts have speculated that this could turn into a major
political issue, with important implications for the RMB/Dollar exchange rate.
The Financial Times reports:

The renminbi has started to appreciate more rapidly in recent
months, rising at an annualised rate of about 20 per cent, compared
with 6-7 per cent over the whole of 2007.  In the longer-term, say
economists, China will have no choice but to allow its currency to
appreciate faster, even in the face of entrenched domestic
resistance.

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