The Chinese foreign reserve accumulation is really about the exchange rate peg. As long as the Yuan’s dollar peg remains near present levels, the current account imbalance will result in an accumulation of dollar reserves. Former Morgan Stanley Economist Andy Xie says the Chinese do have a choice as to what US dollar assets to buy, even so. He suggests China diversify out of Treasuries and into other US dollar assets. Longer-term, he says the peg must go.
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