LONDON (Thomson Financial) - The Chinese government has hinted that it may liquidate its vast holding of US Treasury bonds, potentially triggering a crash in the dollar, if Washington imposes trade sanctions to force a yuan revaluation, The Telegraph reported.
The paper said that two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that China may use its 1.33 bln usd of foreign reserves as a political weapon to counter pressure from the US Congress.
Xia Bin, finance chief at China's Development Research centre, which has cabinet rank, commented last week that China's foreign reserves should be used as a 'bargaining chip' in talks with the US, the report said.
He Fan, an official at the Chinese Academy of Social Sciences, went further yesterday, indicating that China had the power to set off a dollar collapse, if it chose to do so, The Telegraph said.
'China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency,' he told China Daily.
'Russia, Switzerland and several other countries have reduced their dollar holdings. China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar.
'The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar,' he said.
Shifts in Chinese policy are often announced through key think tanks and academies.
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