Tags: michael | carr | China | Bail | Out Eurozone

China Can Bail Out Eurozone, Practically by Itself

By    |   Wednesday, 19 January 2011 08:57 AM

With foreign reserves of more than $2.8 trillion, many market watchers are concerned that China could undermine the U.S. economy by selling off that reserve. What many don’t realize is that China has already converted a large part of that reserve to other currencies.

Long-concerned about the long-term prospects of the U.S. dollar, China has diversified its holdings and about a quarter of the total is in euros. That amounts to about $700 billion worth of euros.

Debt problems in Europe have actually allowed China to put some of those euros to work. The European Central Bank has estimated that the worst-case scenario will require a 1.5 trillion euro infusion of cash into the system. This is about $2 trillion at current exchange rates.

China has been a cash machine for years, and increases its foreign reserves by approximately $1 billion a day. At that rate, it could effectively fund a slow bailout of Europe without a disruption to the financial markets.

Even a dramatic crash, like the world saw in 2008, could be mitigated with China’s reserves. The likelihood of such a crash originating in Europe has been greatly reduced by the willingness of China to buy European debt.

This may not be a long-term solution to the debt problems plaguing the eurozone, but it seems to offer some breathing room while politicians struggle to find the long-term answers.

© 2021 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
MichaelCarr
With foreign reserves of more than $2.8 trillion, many market watchers are concerned that China could undermine the U.S. economy by selling off that reserve. What many don t realize is that China has already converted a large part of that reserve to other...
michael,carr,China,Bail,Out Eurozone
230
2011-57-19
Wednesday, 19 January 2011 08:57 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved