It is well known that China accumulates vast quantities of foreign exchange reserves as part of its strategy for ‘steering’ the yuan exchange rate, and that it prevents the US, Japan or the European Central Bank from retaliating by prohibiting foreigners from investing in any significant yuan assets. One solution that would not break any international commitments would be for the US and Japan to declare that they will henceforth only allow the sale of their public debt to countries whose public debt US and Japanese residents are also allowed to buy and hold.
A revised version of this Commentary by CEPS Director Daniel Gros was reposted on 8 October 2010.
