Indeed the People’s Bank of China’s Monetary Policy Report for the second quarter of 2005 states that at the end of June official foreign exchange reserves had reached $ billion, and more importantly, had grown by $ billion over the end of 2004. It is clear therefore that there has been acceleration in the pace of reserve accumulation by China.
Indeed, some Asian countries have kept their currencies undervalued in an effort to maintain external competitiveness, attract foreign direct investment and boost exports and growth. Dooley et al (2004) argue that the resulting accumulation of foreign reserves can be seen as collateral, which is being used for attracting foreign investment.