Sunday, August 12, 2007

No US dollar sell-off, Chinese central bank official says

HEAT IS ON: As the US dollar has fallen in value, China's central bank is facing pressure to diversify its holdings to maintain the value of its reserves


China sought yesterday to dampen speculation it will conduct a massive sell-off of US dollar holdings, with a central bank official saying the US dollar remains a mainstay of its foreign exchange reserves.

In an interview carried by the government's Xinhua news agency, an unnamed official with the People's Bank of China said US dollars and government bonds are "an important part of China's foreign reserve investments."

China's US$1.3 trillion in foreign exchange reserves are the largest in the world and are believed to be comprised largely of dollar assets, potentially giving Beijing enormous sway over the dollar's value worldwide.

A report in the British newspaper the Daily Telegraph last week that quoted Chinese government economists as saying China would dump its dollar holdings in the event of a trade war with Washington added to jitters in stock markets already unnerved by volatility in US share markets.

Xinhua said the central banker's remarks were intended to counter reports in Western media that China "is threatening to carry out a sell-off of US dollars."

The People's Bank does not disclose the composition of its foreign exchange reserves, which have swelled in recent years as China's exports surged and investors poured money into the country to profit from an economy now in its fourth straight year of double-digit growth.

But the reserves have become a political issue both within China and between Beijing and Washington. As the US dollar has fallen in value, the People's Bank has come under pressure to diversify its holdings to maintain the value of the reserves and improve returns.

No comments: