China's foreign reserves topped US$1.68 trillion at the end of March, up 40 percent from a year earlier, the central bank reported Friday, according to AP. China added US$153.9 billion to its foreign reserves in the first three months of the year, according to figures released by the People's Bank of China. In March, the reserves increased by US$35 billion. China has amassed the reserves, by far the world's largest, as the central bank drains money from the economy to reduce pressure for prices to rise as money pours in from booming exports. But the increase also reflects speculative inflows of funds attracted by the rising value of the Chinese currency, the yuan, against the U.S. dollar and recent increases in interest rates, which make investments more attractive. Beijing keeps most of its reserves in U.S. Treasury securities and other safe but low-yielding assets. But it launched a US$200 billion investment fund last year using money from the reserves in hopes of earning a higher return. China added US$461.9 billion to its reserves in 2007. Financial markets closely watch China's reserves because any change in Chinese policy could affect U.S. Treasury markets and the availability of cash to finance the U.S. government's budget deficit.
