Once again, the future of the world economy hinges on whether Asian central banks will retain their appetite for US treasury bonds and allow the US to continue running a current account deficit.

At the World Bank/IMF meetings in October, a number of Asian central bank governors expressed a reluctance to change tack. The governor of State Bank of Pakistan, Dr Ishrat Husain, said that the need for liquidity and safety made investing central bank reserves in US treasuries a rational decision.

Li Ruogu, the affable deputy governor of The People’s Bank of China, said: “Liquidity is first, safety is second and only third comes profits.” He said that China would start buying euro assets as well as dollar assets at some stage but currently “the euro is too expensive, our trade is denominated in dollars and we can’t make sudden shifts”.

But central bank governors are the most circumspect of financial commentators, especially when talking in public.

Not only is there strong evidence that Asian central banks are moving cautiously up the credit curve and going for longer maturities, but also in one or two cases reserves have been used to buy equities.

China has $480bn of its reserves invested in US treasury bonds. How much of a switch into equities would it take to kick off a glorious stock market revival?

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