Will China Stop Buying USD Now?

While western nations like the US have been criticized for resorting to printing incessantly their own national currencies, China has not been immune, as many complain that it manipulates its currency, the renminbi (RMB).

China, by keeping RMB low relative to the dollar, makes itself more competitive in foreign markets.

But the US energy production boom has changed things.

China surpassed the US in September to become the world’s largest oil importer, importing 6.30 million barrels a day versus America’s 6.24 million. Chinese oil demand is expected to grow 3.9% in 2014.

Should China’s role in the oil market continue to grow, the trade itself could go from being priced in US dollars to being priced in renminbi. As AEI’s Derek Scissors postulates:

Within a few years, China could not only pass the US for the lead, it could be far in front, as American shale productions continues to rise. Will oil pricing then start to move to RMB? Only when the RMB is made fully convertible – a choice Beijing has struggled with for years. It may struggle for a good while longer, but when the decision is finally made, oil will give the RMB a strong claim to be a truly global currency.

China’s central bank stated it doesn’t see a reason to increase its world’s-largest $3.66 trillion foreign currency reserves.  China will cap its buying of US dollars.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Bloomberg quoted Yi Gang, a deputy governor at the central bank as saying Tuesday.