Chinese Foreign Currency Reserves Swell by Record Amount

By KEITH BRADSHER
NYT

BEIJING — China’s foreign exchange reserves surged in the fourth quarter by a record amount while the money circulating within the Chinese economy also climbed more than expected in December, according to government statistics released Tuesday that underline the country’s worsening inflation dilemma.

The Chinese government has been printing renminbi at a furious pace in order to buy foreign currencies like the dollar and the euro, which are pouring into the country through trade surpluses and foreign investment. The People’s Bank of China, the country’s central bank, has been doing so in an effort to hold down the value of the renminbi and preserve a competitive advantage in foreign markets for exporters in China and the tens of millions of workers they employ.

The additional renminbi issued to pay for rising foreign exchange reserves will make China’s inflation problem even worse, said Diana Choyleva, an economist in Hong Kong for Lombard Street Research. The extra renminbi come as the Chinese central bank has been grappling with the additional money that it pumped into the Chinese banking system in 2009 and early 2010 to keep the economy growing through the global financial crisis.

“Considering that they engineered the most dramatic monetary expansion in their own history and in the world’s since World War II, there was a large monetary overhang” even before the recent currency market intervention, Ms. Choyleva said.

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