Multi-billion Dollar Forex Reserves Questions - Foreign Exchange Asset Management
While there are many countries which would bend over backwards to have enough a few billion dollars in forex kitties, China has an unusual problem - it has over a trillion dollars in its foreign exhange reserves and is keen to find ways to invest this money in a more efficient manner. Reports suggest that if China were to continue being the factory of the world, in a few years, its forex reserves could double!
Until now, China has been investing most of its reserves in low-yielding instruments and securities - such as the US treasuries and the G-7 countries treasuries, which do not offer much better than the US treasuries!
It is understood that a few key financial figures within the Chinese establishment have started exploring other ways of managing and investing these funds - in order to obtain higher returns, as well as to use them to improve conditions for the people in the home market. Add to this the fact that US $ has been depreciating against others such as the Euro.
Just to give an idea of what a different forex assets management could mean: The Singapore Government's Investment Corporation - which manages the forex assets of the country - recently published numbers that stated that Singapore has earned a yield of 9.5% over the last 25 years. In contrast, Indian forex assets, which one can assume are invested in low yielding country treasuries, got an annual return of 3.1% . Given the current Indian reserves of about 170 billion US $, this would mean that India can earn an additional 10 billion US$ every year by a more efficient management. And just imagine how much more China could earn, with forex assets over five times that for India! And this is money for jam, well, OK, not exactly, there are a lot of nitties and gritties, but both countries can do with an additional 10 billion - 25 billion $, what do you say?
