Chinese economist: Cut dollar share of forex reserves
From Reuters
via China Daily, Beijing
Monday, February 27, 2006
http://www.chinadaily.com.cn/english/doc/2006- [1]
02/27/content_524420.htm
China should reduce the dollar share of its foreign exchange
reserves because of the risks posed by the instability of the U.S.
currency, influential economics professor Xiao Zhuoji said in an
interview published on Monday.
Speaking to the Shanghai Securities News, Xiao also proposed a
number of ways to slow the explosive growth in China's reserves,
which rose 34 percent last year to $818.9 billion.
"Dollars account for most of our reserves, and the instability of
the dollar increases foreign exchange risk. So we should take
measures to cool down this extraordinary reserve growth," the paper
quoted Xiao as saying.
He proposed adjusting the structure of China's reserves to reduce
currency risk but did not elaborate.
Xiao is a Peking University professor and a member of the standing
committee of the Chinese People's Political Consultative Conference,
a body that advises the National People's Congress, or parliament.
The congress convenes on Sunday for its annual session.
"The rise in foreign reserves demonstrates the strength of China's
economy. But the extraordinary growth has also had some negative
impact and brought with it foreign exchange rate risk," Xiao told
the paper.
For one thing, the yuan issued by the central bank when it buys
dollars flooding into China could fuel a new burst of fixed-asset
investment, making it harder to control the economy.
China could slow reserve growth by strictly controlling capital
inflows and speeding up exchange rate reform, he said.
For example, companies could be allowed to hold more foreign
exchange, instead of being required to sell it to the central bank,
and Chinese could be permitted to invest in foreign currencies.
Xiao also said China could also cut its trade surplus, which tripled
last year to $102 billion, by reducing resource-intensive exports
and importing more high-tech products.
* * *
China will diversify reserves only slowly, PBOC official says
From AFX News
via Forbes.com
Monday, February 27, 2006
http://www.forbes.com/markets/feeds/afx/2006/02/27/afx2554697.html [2]
BEIJING -- China is moving toward diversifying its reserves, but
those who expect such a change to be quick are misunderstanding the
process, the director of the People's Bank of China's research
department said.
"It will take time to do so. It's a process. Every investor wants to
optimize his own portfolio or investment structure but that doesn't
mean that the portfolio will change overnight," said Tang Xu,
replying to questions at a banking conference.
Tang said it is right that China looks for ways to increase returns
on its reserves.
"Of course it's good. It's a trend. We will seek to maxmize the
value of assets while minimizing the risk."
But he said those in the markets who have taken such plans as
meaning a sudden sale of China's US assets are wrong.
"Some say China will sell its US dollar assets but I think this is a
misunderstanding."
Tang also said another Plaza Accord, which saw Japan, the US and
Europe agreeing to help the dollar weaken, is not the way to go for
China.
"We often say we can't follow this original road to go in the wrong
direction," he said.
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