» China becomes a lender to the world

What is the optimum level of forex reserves that a country should have? We believe that the reserves should be able to provide sufficient cushion for paying import bills and also to service external debt comfortably. Many experts believe that China crossed these landmarks long time back. But still, the accumulation of reserves has not slowed down one bit. In fact, if anything, it has only increased. And these reserves, rather than being a source of pride are beginning to look like embarrassment. For should the value of dollar erode substantially, China's reserves too would take a massive hit. Little wonder, the dragon nation has stepped up its efforts to utilise its huge reserves and it has zeroed in on lending to other countries as one such option.

FT reports that China has actually ended up lending more money to other developing countries than the World Bank over the past two years. It is estimated that while the dragon nation loaned out US$ 110 bn in 2009 and 2010, World Bank could manage to lend about US$ 10 bn less during roughly the same period. We believe that while the move is indeed a smart one, all bets would be off should the dollar start losing value rapidly.