China should not worry about stalled US talks over the debt limit, an academic adviser to the People's Bank of China said on Monday, predicting that politicians will ultimately reach a deal to avert a crisis.
Xia Bin, a member of the central bank’s monetary policy committee, played down near-term risks to China's economy since Washington has little choice but to continue pursuing loose monetary policy in a bid to spur the world's biggest economy.
“Don’t worry too much about it. The United States will have to issue more debt and issue more currency,” Mr. Xia told Reuters in an interview.
Mr. Xia said the debt talks have gained too much media attention as US politicians try to maneuver on the debt issue to score strategic points before the next presidential election in November 2012.
“They won’t betray the national interest. They are now playing with politics,” Mr. Xia said.
“They will definitely reach a compromise,” he said.
As a central bank adviser, Mr.Xia is an influential economist but is not directly involved in policymaking.
Prospects of a budget breakthrough faded as lawmakers missed a self-imposed deadline to produce a deal by the time Asian markets opened for the new week. They still plan to outline proposals on Monday, but both sides appear further apart than ever. For details, see.
Moody’s, Standard & Poor’s and Fitch have said they will downgrade the US credit rating if failure to raise the nation's $14.3 trillion debt ceiling leaves the Treasury without cash to service its debt obligations in August.
Mr. Xia reiterated his earlier views that China should speed up diversification of its rapidly accumulating foreign exchange reserves away from dollar assets to hedge against risks from what he predicted would be a long-term decline for the US currency.
China’s reserves, the world’s largest, swelled by $152.8 billion in the second quarter to a record $3.2 trillion, driven by sustained capital inflows and its large trade surplus.
Chinese officials have pledged to diversify the huge reserves − as much as 70 percent of which are now in US dollar assets, according to analyst estimates − but the process has been gradual.
China faces “pressures and challenges” in managing its huge foreign reserves, but the holdings may also present the country with an “unprecedented” opportunity to help its long-term development, Mr. Xia told Reuters in an interview on July 14.