TOKYO/SEOUL, June 3 (Reuters) - Asia's richest central banks would likely shrug off portfolio losses from a U.S. sovereign credit rating downgrade and keep buying U.S. Treasuries to help maintain market stability, officials and other people with direct knowledge of policymaking say.
A U.S. rating cut would weaken the dollar and wreak havoc on investments around the world benchmarked against Treasuries, but the sources said it would not cause China, Japan, India and South Korea to change their reserve policies because there are no alternatives to the liquidity afforded by the dollar.
Those four countries control about half of the world's foreign exchange reserves.
"They (central banks) are not competing against mutual funds or hedge funds. If they make a loss it's okay, as long as they are sticking to the investment policy imposed from the very top, because they are not concerned with short-term gains or losses," said a person familiar with the thinking of Chinese reserve managers, who spoke on condition of anonymity because of the sensitivity of the issue.
"The U.S. Treasury bond is a partnership the Chinese government holds," the source added, stressing that selling down dollar-denominated assets could hurt the political relationship between China and the United States.
China is the single largest U.S. creditor, holding $768 billion of Treasuries in March, up 56 percent in the last year.
Beside China, other Asian central banks have been replenishing their foreign reserves despite concerns about the rapidly growing U.S. fiscal deficit. In April, reserves in Asia ex-China rose $15.2 billion to $2.46 trillion. [ID:nSP482212]
(Reporting by Hideyuki Sano in TOKYO and Yoo Choonsik in SEOUL; Additional reporting by Saikat Chatterjee in MUMBAI, Kevin Lim in SINGAPORE and Kevin Plumberg in HONG KONG; Writing by Kevin Plumberg; Editing by Kim Coghill)