First, just to get oriented, let’s keep in mind why China has been losing its reserves. As the piece notes, it has been trying to keep its currency from falling. Note that for years, the United States and other countries have wanted China to raise the value of its currency. The argument was that it had accumulated vast amounts of reserves to keep the value of its currency low in order to maintain large trade surpluses.
Now the story is that if China decided not act – it did not use its reserves to buy up the currency being sold by people trying to get some of their money out of the country – the Chinese currency would fall against the dollar and other currencies. Would this be a problem for China?
In short, it is very difficult to see a story where the Chinese government need have much fear of running out of foreign reserves. China is a country with an enormous stockpile of reserves that is running large trade surpluses, and it is still growing very rapidly by any measure other than its own past growth. It is not a country that is going to face a foreign exchange crisis.
Is China at Risk of Running Out of Foreign Reserves?