China’s Forex Reserve Growth Slows

When you start to learn forex psychology, it becomes clear that the “glass half empty” school of ideology prevails. Although China’s forex reserves are the world’s largest at $1.9 trillion as of September 2008, the focus lately has been on the fact that the overall growth rate has slowed this year due to global economic weakness.

In the first quarter of this year, growth was up nearly 40% but now stands at only 32.9% higher than the previous year. According to AFP, experts foresee the slowing to continue amid prolonged economic woes, the strengthening U.S. dollar, and government actions to curb speculative “hot” money inflows. In the past, “hot money” has been the third major contributor to the growing reserve behind trade surplus and inflows of foreign investments. However, the dollar’s strength as of late, limiting profit taking on the yuan, has most likely discouraged “hot money” and pared the reserve’s gains.