Summers: Foreign Central Banks Should Diversify Away from U.S. Debt

Larry Summers tells foreign central banks to diversify their reserves away from U.S. debt:

Summers Urges Diversification For Emerging-Markets' Assets, by Davud Wessel, WSJ: Lawrence Summers ... said emerging-market governments should consider diversifying their reserves away from "maximally liquid, maximally safe" short-term securities, such as U.S. Treasury debt. ... Mr. Summers said China, Taiwan, Russia, Thailand, India and other countries with significant reserves should consider "more aggressive investment -- either in support of imports that have a high social return or in a much richer menu of international assets." If India's reserves were invested in assets that performed as well as U.S. university endowments, he said, its government would have additional income equal to between 1% and 1.5% of gross domestic product each year.

Because central banks are likely to be criticized if their investments do poorly and because of "opportunities for mischief in picking assets" and "exercising control," Mr. Summers suggested the International Monetary Fund or World Bank consider creating "an international facility in which countries could invest their excess reserves without taking domestic political responsibility for the process of investment decision and ultimate result."...

I'd rather not have a shift away from U.S. Treasury debt and the upward pressure on interest rates that's likely to bring about. Still, it would be wise for us to prepare for that eventuality, something we are not doing now. Full text of Summer's remarks.