Central bank urges US to act responsibly on debt
Source: Agencies |
August 4, 2011, Thursday
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Print Edition
Print Edition
China's central bank governor urged the United States yesterday to act responsibly to deal with its debt issues, saying uncertainty in the US Treasuries market would undermine the international monetary system and hamper global growth.
The remarks by Zhou Xiaochuan, head of the People's Bank of China, were China's first official response to the passage of a US deficit-cutting deal after weeks of bitter wrangling that alarmed financial markets and brought the country to the brink of a catastrophic debt default.
As its largest creditor, China is particularly vulnerable to US debt strains and has repeatedly urged Washington to protect its dollar investments, estimated to account for about two-thirds of its US$3.2 trillion in foreign exchange reserves.
Zhou welcomed US progress in dealing with its debt problems but urged Washington to take "concrete and responsible" measures to bolster confidence in US Treasuries, of which China is a major buyer.
"Big fluctuations and uncertainty in the US Treasury market will influence the stability of international monetary and financial systems, thus hurting the global economic recovery," Zhou said in a statement on the central bank's website.
"We hope that the US government and the Congress will take concrete and responsible policy measures ... to properly deal with its debt issues, so as to ensure smooth operation of the Treasury market and investor safety."
Due to the size and liquidity of the Treasury market, US government bond yields are often the benchmark for the pricing of other financial assets around the world.
So a sharp spike in US yields may roil markets and raise borrowing costs, endangering global economic activity. Investors who hold Treasuries as collateral would be hurt, too.
Zhou made the remarks after US President Barack Obama signed into law a measure to cut spending and raise the US debt ceiling. "We welcome such progress," Zhou said.
"We will further study details of the measures and closely monitor how they would be implemented."
Markets are waiting to see if credit rating agency Standard & Poor's cuts the prized US AAA rating. The debt plan calls for savings of US$2.1 trillion over 10 years, nearly half the amount S&P has said would be enough to support the current rating.
Moody's and Fitch confirmed their AAA rating but Chinese rating agency Dagong Global Credit Rating Co cut its rating to A from A-plus, putting the US on a par with the likes of Spain and Estonia.
The remarks by Zhou Xiaochuan, head of the People's Bank of China, were China's first official response to the passage of a US deficit-cutting deal after weeks of bitter wrangling that alarmed financial markets and brought the country to the brink of a catastrophic debt default.
As its largest creditor, China is particularly vulnerable to US debt strains and has repeatedly urged Washington to protect its dollar investments, estimated to account for about two-thirds of its US$3.2 trillion in foreign exchange reserves.
Zhou welcomed US progress in dealing with its debt problems but urged Washington to take "concrete and responsible" measures to bolster confidence in US Treasuries, of which China is a major buyer.
"Big fluctuations and uncertainty in the US Treasury market will influence the stability of international monetary and financial systems, thus hurting the global economic recovery," Zhou said in a statement on the central bank's website.
"We hope that the US government and the Congress will take concrete and responsible policy measures ... to properly deal with its debt issues, so as to ensure smooth operation of the Treasury market and investor safety."
Due to the size and liquidity of the Treasury market, US government bond yields are often the benchmark for the pricing of other financial assets around the world.
So a sharp spike in US yields may roil markets and raise borrowing costs, endangering global economic activity. Investors who hold Treasuries as collateral would be hurt, too.
Zhou made the remarks after US President Barack Obama signed into law a measure to cut spending and raise the US debt ceiling. "We welcome such progress," Zhou said.
"We will further study details of the measures and closely monitor how they would be implemented."
Markets are waiting to see if credit rating agency Standard & Poor's cuts the prized US AAA rating. The debt plan calls for savings of US$2.1 trillion over 10 years, nearly half the amount S&P has said would be enough to support the current rating.
Moody's and Fitch confirmed their AAA rating but Chinese rating agency Dagong Global Credit Rating Co cut its rating to A from A-plus, putting the US on a par with the likes of Spain and Estonia.
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