Recently, Lee Kuan Yew, Chairman of Singapore's Government Investment Corporation (GIC), commented that his organization had earned an average annual return of 9.5% in US dollars and 8.2% in Singapore dollars since its inception in 1981. It could do so because of its judicious diversification of investments of its forex reserves. Its foreign exchange reserves increased to $128.9 bn in May 2006. By the end of October 2006, foreign exchange reserves touched $1 tn. China is planning a similar kind of forex reserve management and is planning an International Reserves Center in Shanghai to manage the country's gold holdings of 600 tonnes valued at $12 bn. Seventy percent of its soaring forex reserves have been invested in the US securities and assets. However, the burgeoning foreign exchange put pressure on centre to evolve new ways to manage the reserves. Perhaps the time is ripe to start reformation in forex management.
China has accumulated $987.9 bn in foreign currency reserves, largest in the world. China's surging trade surplus is the main reason behind this largest stockpile. In the first nine months of 2006, the trade surplus was $109.9 bn buffering its own previous record of 2005. For the first time, China's forex reserves have crossed $1 tn mark during the first week of November, 2006. At the end of September 2006, it surpassed Japan's reserve and thereby became the world's largest reserve. Analysts believe that the undervalued Chinese currency brings trade surplus to China and helps in its swelling reserve. As the reserves crossed $1 tn mark, it will put pressure on renminbi to float freely. Even for Fan Gang, Director of China's National Economic Research Institute and member of China's monetary policy committee, the surging forex reserves would result in a rapid revaluation of the renminbi and that could have disastrous consequences on the country's economic development and the employment of millions of poor workers. |
