As the U.S. struggles to avert a debt default, Asia’s policymakers have trillions of reasons to believe they may be shielded from the latest financial storm brewing across the Pacific.
From South Korea to Pakistan, Asia’s central banks are estimated to have amassed some $5.7 trillion in foreign exchange reserves excluding safe-haven Japan, much of it during the last five years of rapid money printing by the U.S. Federal Reserve.
Data this week showed those reserves continued to pile up, with countries having added an estimated $86.7 billion in the July-September quarter, according to data for 12 Asian countries whose reserves are tracked by Reuters.
China is by far the biggest holder of reserves, with an estimated $3.57 trillion according to a Reuters poll of analysts, which shows Asia’s largest economy probably accumulated $68 billion alone in the previous three months.
For added protection, Asian governments have been whittling down their debt and cementing foreign exchange swap agreements that allow them to borrow their neighbors’ reserves if necessary.
All that money might seem cold comfort given that roughly three-fifths of it is kept in U.S. dollars, invested in U.S. government bonds and other U.S. assets.
A U.S. default would hit the value of those investments and – as when the U.S. suffered a credit ratings downgrade in 2011 – paradoxically send investors fleeing from risky emerging markets, selling Asian currencies for the world’s most commonly used legal tender, the U.S. dollar.
Full article: U.S. debt default? Asian policymakers ready $6 trillion forex safety net (Reuters)