Many countries have their own hands full, like the US, using their capital to counter the financial crisis, consolidate their financial system, and fuel their own stimulus packages to revive the real economy, even though they have some foreign exchange reserves in US dollars.

Thanks to trade surpluses, emerging economies hold a combined US$5.5 trillion in forex reserves, but most of the reserves have already been used to buy US treasury bonds, said Yoko Kitazawa, an expert on international affairs, in a February issue of Sekai (The World), a Japanese monthly journal.

However, trade surpluses of these regions and countries are eroding because of a collapse in global trade.

As a result, forex reserves of these regions and countries are expanding at a slower pace, or even declining. The latest forecast from the World Trade Organization said global trade may shrink by 9 percent, or more, this year.

As the largest holder of US treasury bonds and the world's second largest exporter, China had seen exports decline since November last year, with its actual use of foreign capital falling since October.

Media reports said China's forex reserves may have decreased by more than $30 billion in the first two months. China's forex reserves stood at about US$1.95 trillion at the end of last year, the largest in the world.

The Xinhua-run newspaper Economic Information Daily reported this month China had liquidity of only US$300 billion to US$500 billion in forex reserves, citing a report from an unidentified ministry-level research institute.

Crowding out effect of US capital pool

Yang Bin, also a CASS economist, said the US was luring capital scattered all over the world to pool in the US by floating excessive treasury bonds, which could be a threat to developing countries which are crying out for capital.

Economic development in many developing countries is, to a large extent, counting on such an influx of overseas capital.

The US-based Institute for International Finance warned in January that capital flows into emerging markets are in danger of collapsing this year as a result of the financial crisis.

The association of large banks estimates that net private sector capital flows to emerging markets will be no more than US$165 billion this year, which is less than half of US$466 billion in 2008 and only a fifth of US$930 billion in 2007.

The crisis and a global economic recession are also aggravating the world poverty. The United Nations said in a report published this month that reduced growth this year would lead to a total income loss of around US$18 billion (US$46 per person) for 390 million people in Sub-Saharan Africa living in extreme poverty.

The projected loss represents 20 percent of the per capita income of the poor in Africa, far exceeding the losses of developed nations.

The majority of low-income nations, or 43 out of 48, are incapable of providing a government stimulus for the poor, according to the report.

In addition, the excessive US treasury bonds, its enormous fiscal deficit, and issuance of the dollar that far exceeds the demand of the economy would drive the world nearer to inflation and a depreciating US dollar. This could be another heavy blow to the world economy in a downturn and to developing countries in particular.

(Xinhua News Agency April 1, 2009)