The Deeper Meaning Behind The Reduction in U.S. Reserve Holdings

According to the latest news, China decreased U.S. foreign debt holdings by 25.1 billion dollars in June. This move made many Chinese citizens happy, yet it put the Americans on alert. The happiness or anxiety that resulted from this action is derived from each party's personal interests. From a Chinese perspective, China has an urgent need to transform the imbalanced situation, which is a result of the composition of foreign reserve holdings. Also, it must ensure that foreign reserves are secure, maintain value or even increase in value.

U.S. national debt appears to be safe and has great liquidity. The dollar also seems to be able to hold value or increase in value. Yet, hidden beneath a layer of smoke, devaluation is evident.

There is an insidious tendency for this national debt to lose value. In this type of situation, the reasonable thing for China to do is to take action in order to decrease its holdings of U.S. debt.
　
To decrease holdings in U.S. debt is also to make known that China is seeking to pluralize foreign reserve holdings. But this act of pluralization is a complex matter. There are two primary aspects to this complex issue. The first is to take a scientific approach toward the assessment of foreign reserve holdings, and to seek out the greatest amount of profit with the least amount of risk. The second is the urgent need to foster talented people who are adept in the rules of this international game, and superbly experienced in management.
　
The consequences of pluralizing foreign reserves is the pluralization of the values of each selection. A specific proportion of U.S. dollars is essential, as this is the fundamental means by which China handles critical international payment, and it is also a tool for dealing with international secret transactions and adjusting to unusual financial actions, such as early debt repayment requests.

A specific proportion of gold is essential. As gold is the natural recourse of state strategy, it is the most stable and most basic form of credit, and at crucial moments it can become a country's formidable economic backup. A specific proportion of other stable currencies--such as the euro, the British pound, the Swiss franc, etc.--are essential, because in the event of the devaluation of the U.S. dollar, this will provide a form of leverage.
　
Apart from the financial qualities, foreign reserves must also have practical qualities. For instance, foreign currency can be used to integrate the global expansion of enterprises or to purchase heavy equipment and sophisticated technology that is essential for national development, or as a resource for international investment strategy and holdings in mega-enterprises. Of course, in the face of the Western nations early establishment of ramparts or "firewalls" to protect technology, this type of action has been rebuffed time and time again. Besides these, there is also always foreign lending, as well as straightforward purchases of land, real-estate and/or large quantities of goods and commodities.
　
The issue at hand is that we need to apply a scientific assessment of the different paths to pluralization of foreign reserves and determine a scientifically sound foreign reserve structuring, while at the same time determining different standards of valuation to different selections. Only in this type of situation can China correctly choose the allocation of new foreign holdings based in proportion to individually determined standards, rather than by making blind or off-the-cuff selections. We must complete the move towards realizing reserve pluralization under a determined scientifically sound structure. When new frontiers need urgent development, one can not just stop because of the risk.

Before this takes place, China's increasing of U.S. national debt holdings is the consequence of not having the ability to make another choice. When Chinese investments incur losses or limitations it is a reflection of the lack of talented players on the Chinese side. We must admit that we are not yet that familiar with the rules of this international game. With regards to the use of capital, we are still just primary students. When our moves have been calculated by others, we often do not realize it, even after it happens. When we are faced with the big sharks of international finance ready to make trouble, it is possible that we will remain completely unaware. And all this shows the urgent need to build a talent base that is well adept in international finance and strategic investment, as well as operations and management.

Foreign reserves are the wealth of the nation. It is only natural that the public direct their utmost attention to its security. Yet, at the same time, the use of foreign reserves is something that needs to be concealed for the purposes of state strategy. Consequently, for the department concerned, in order to dispel the public's concerns and doubts and balance trust and understanding, the question becomes: How can one still conceal one’s strategic intentions to the greatest degree?