China is making the rounds amongst the rumor-mill this morning. Rumor has it that China will bail out Greece.
The important question on everyone's mind is why would China do this?
The following are some reasons: diversify out of the US Dollar, political goodwill, protect their European exposure, and to show the world once again who the REAL superpower is.
According to the Chinese Foreign Ministry, the Chinese Premier Wen Jiabao will visit Europe next week as it reaffirms their concern and support for Europe's efforts to overcome its debt crisis.
The Foreign Ministry spokesman Hong Lei said, We hope that Greece, the European Union and the international community can cooperate to achieve stability and development.
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Of China's $3 trillion or more in foreign exchange reserves, about a quarter of them are estimated to be invested in euro-denominated assets.
Back when the EURO fell to a low of 1.19 versus US dollar in June of 2010, speculation was that China would come out blazing and buy the EURO in heavy loads. We know what happened next, a month later and the EUR/USD was 700pips higher at 1.26.
Then in December 2010 China wrapped its arms around the world and said we will bail out debt-ridden nations in the Eurozone specifically buying Portuguese bonds and Greek bonds. At that time the EUR/USD was at 1.30 and it precipitously found its way to 1.39 by February of 2011.