If possessing more than a trillion US dollars is a problem, then it is one that most countries would be happy to suffer. But for China in the 2000s, the country’s huge stash of foreign exchange reserves was an issue that sparked impassioned debate.
It wasn’t the absolute amount that was incendiary. The dollars built up by inflows of investment and China’s trade surpluses were seen as the accoutrements of a rising superpower. The problem was how the money was invested.
The only pool of capital in the world large and safe enough to absorb China’s reserves was the US Treasury bond market. But from mid-2005, a sharp depreciation of the US dollar against the renminbi, coupled with weak US interest rates, meant that China was earning next to nothing from investing its prize asset.