Global foreign currency reserves swelled to $8.1 trillion by the end of 2009, more than replacing the amount drawn down during the depths of the recession, the US Treasury Department said on Thursday. China led the way, boosting its reserves by $487.1 billion between February and December 2009. That was more than six times the rise of any other country as Beijing intervened heavily in the foreign exchange market to hold its yuan currency pegged to the US dollar. According to Treasury's figures, China's reserves as of December 2009 totaled $2.4 trillion, up 2.3 percent since February of that year. Japan's were $997 billion, up 0.2 percent since February. Russia and Saudi Arabia each held nearly $400 billion. Countries hold reserves for a variety of reasons, including for day-to-day transactions like debt repayment. Countries such as China with pegged exchange rates need to hold reserves to offset downward pressure on their currencies. Some governments also hold reserves as a form of self-insurance against sudden loss of investment flows that could cause a financial crisis. The figures were released on Thursday as part of the US Treasury's long-awaited report to Congress on exchange rate policies, in which it once again declined to label China a currency manipulator. Before the worst phase of the financial crisis in 2008, global reserves had peaked at $7.2 trillion. Between July 2008 and February 2009, they declined by 5.8 percent, largely as a result of countries' efforts to stem currency depreciation. Some countries also used a portion of their reserves to fund stimulus programs. Russia's reserves showed the biggest decline, dropping $120.1 billion over a seven-month period. Nearly all major reserve-holding economies resumed building stockpiles starting in February 2009. “For a few countries, most notably China, the increase in reserves was associated with a decline in the nominal effective exchange rate, indicating that reserve accumulation may have been used to prevent exchange rate appreciation,” the Treasury said. There are no hard and fast rules for how much a country should hold in reserves. Commonly-used benchmarks include a sufficient amount to cover external debt coming due within 12 months, or enough to cover three to four months of imports. Treasury said China's reserves alone would cover the short-term debt of the 12 largest reserve-holding emerging markets and still be above adequacy benchmarks.
