Theophilos Argitis and Christopher Fournier
Bloomberg
Wednesday, Dec 23rd, 2009

Canada’s Finance Minister Jim Flaherty said China, with the world’s largest currency reserves of $2.3 trillion, may be poised to buy Canadian dollars as it seeks to shield its reserves against the U.S. dollar’s decline.

“It does not surprise me that China and Russia would take greater positions in the Canadian dollar than they have previously,” Flaherty, 59, said during an interview in his office in Ottawa. “I would expect countries looking around the world to invest in market currencies that are reliable.”

The U.S. dollar has declined against all but one of the 16 most-active currencies this year, prompting major reserve- holding countries such as Russia and China to express concern about their U.S.-denominated investments. Russia last month said it will add Canadian dollars to its reserves to lower its dependence on the U.S. currency.

The Bank of Canada has warned “persistent strength” in the currency is a main risk for the economy, potentially acting as a “significant” drag on growth. Canada’s currency has gained 15 percent this year against the U.S. dollar. Chinese purchases of Canadian dollars would also cement growing economic links between the U.S.’s two largest trading partners.

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