Foreign Exchange News
- Nation needs large stash of U.S. dollars
Date: 25-Jan-2007 Sources: (Shenzhen Daily)
CHINA needs to keep ploughing a big share of its foreign exchange reserves into U.S. dollar assets because a major shift out of the U.S. currency would trigger a marketwide exodus, economists said in remarks published yesterday.
The government has never revealed the composition of the country's foreign exchange reserve investments.
But bankers and economists assume that some 70 percent of the reserves, which hit US$1.07 trillion at the end of 2006, is parked in greenback-denominated assets, primarily U.S. Treasury and government agency securities.
'China may still need to hold large stockpiles of dollar assets to ensure the credit worthiness of the yuan regardless of what happens to U.S. dollar interest rates and the U.S. currency,'said Zhang Anguan, a researcher with the country's top economic planner, the National Development and Reform Commission.
'For the foreseeable future, other currencies such as the euro are unlikely to undermine the international status of the dollar or the yuan,'he wrote in the China Securities Journal.
Turning to the country's still growing international balance of payments position, Zhang said China would seek to address the problem by stepping up investments overseas and extending more loans to other countries rather than by curbing exports.
Only a sharp appreciation in the yuan could ensure that the country's export growth slowed enough to make a difference but this was not an option given the dramatic impact it would have on economic growth and employment, he said.
As a result, the government had ruled out another one-off revaluation, he said.
Any attempts to reduce the international payments surplus by boosting imports were bound to be stymied by certain export restrictions practiced by some countries, especially in the field of high-technology goods, he said.
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