China has created a never ending loophole for itself by keeping around 70 percent of foreign holdings in the form of U.S. dollars. It has to strive to maintain the strength of the dollar in order to ensure the stability of its economy.
In the International market, it is ironical how China has entangled itself in its own web of economic growth. By investment in U.S. stock exchanges and purchase of U.S Treasury notes, China re-injects the much needed capital required for its own economic growth. Also China cannot afford the growth of the RMB as it would lead to the depreciation of the U.S dollar, which is consequence China would not want to face.
In my opinion, China should shift its focus on its internal economy and strengthen it rather than injecting Billions of Dollars in The U.S economy.
In order to do so China has two options:
I. That China should invest in other stable economies like Europe or Singapore.
II. That China changes the International Trade currency to RMB.
By investing in other more stable economies, China will not have to worry about the U.S dollar losing its value and in turn, strengthen the other economies and other currencies which would provide better returns. The slight drawback of this model would be that China might not be able to recover the same amount of gains that it would have had from the U.S dollar exchange but slightly less.
In the second model, if China, by the agreement of the other countries manages to convert Trade currency in RMB then over a period of years, China will be benefited in two ways:
a. The accumulated Dollars in State Administration to Foreign Exchange, China, will slowly convert into RMB.
b. The strength of the chinese economy will grow manifolds.
By following the models, I propose China’s economy will boom and it will generate the much needed RMB which would be used to develop internal needs of better schools, environment friendly industries, heating systems and more....