China’s Foreign Reserves ExplainedConfluence Investment Management
We often get questions about China’s foreign reserves. The fear is that China’s massive “pile” of foreign exchange reserves is a risk factor for U.S. markets. In the first part of this report, we will discuss the evolution of foreign reserves from gold to the dollar, with a historical focus. In Part II, we will use the macroeconomic saving identity to analyze the economic relationship between China and the U.S. In Part III, using this analysis, we will discuss the likelihood that China will “dump” its Treasuries and potential repercussions if it were to do so . . .
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