Chinese Foreign Exchange Reserves, Policy Choices and the U.S. Economy

45 Pages Posted: 12 Jan 2017 Last revised: 5 Jan 2019

See all articles by Christopher J. Neely

Christopher J. Neely

Federal Reserve Bank of St. Louis - Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-01-09

Abstract

China is both a major trading partner of the United States and the largest official holder of U.S. assets in the world. The value of Chinese foreign exchange reserves peaked at just over $4 trillion in June 2014, but has since declined to $3.19 trillion as of August 2016. This very large decline is in foreign exchange reserves is unprecedented and some analysts have speculated that continued sales of these (mostly U.S.) assets might significantly impact the U.S. and global economies. This article explains the reasons for this large decline in official assets, what China’s policy choices are, and how these choices could affect the U.S. economy.

Keywords: Monetary policy, central banks and their policies, foreign exchange, current account

JEL Classification: E52, E58, F31, F32

Suggested Citation

Neely, Christopher J., Chinese Foreign Exchange Reserves, Policy Choices and the U.S. Economy (2017-01-09). FRB St. Louis Working Paper No. 2017-1. Available at SSRN: https://ssrn.com/abstract=2898090 or http://dx.doi.org/10.20955/wp.2017.001

Christopher J. Neely (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

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Saint Louis, MO 63011
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HOME PAGE: http://www.stls.frb.org/research/econ/cneely/

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