China refuted rumors on Friday that it had been dumping US
dollar-denominated assets from its massive foreign exchange
reserves.
The rebuttal by the nation's forex regulator was a direct
response to recent reports in overseas media that the nation was
reducing US dollar holdings due to the greenback's persistent
slide.
"Those reports were utterly groundless," said a spokesman for
the State Administration of Foreign Exchange (SAFE).
"China is a highly responsible investor in the international
market," he continued. "China has always been protective of the
security and stability of the international market on a voluntary
basis, and will never participate in exchange rate speculative
trading."
The currency allocation of China's forex reserves is based on
factors such as the needs of its economic growth, foreign trade
payments, foreign debt structure as well as capital market
conditions.
"We pay a lot of attention to the tendencies of the
international foreign exchange market, but will not adjust our
currency mix to follow short-term market fluctuations," the
spokesman said.
The US dollar slid substantially against major currencies in
recent months. It has depreciated 30-40 percent against the euro
and 10-20 percent against the Japanese yen since 2002.
The dollar's depreciation has also prompted worries that it had
subsequently resulted in huge losses to China's forex reserves,
which SAFE also dismissed.
China's forex reserves jumped by 27 percent in the first three
quarters of this year to US$514.5 billion. Sixty to 70 percent of
the money is commonly estimated to be held in US dollar-denominated
assets.
China has developed a relatively mature mechanism to manage its
forex reserves under the principles of "safety, liquidity and
appreciation," and exchange rate changes will not result in any
real gains or losses until currency conversion occurs, the SAFE
spokesman said.
The Chinese government has fully considered its external payment
needs when deciding the currency mix of its forex reserves, he
said.
"So there is no possibility of China converting US dollars into
other currencies due to a lack of real payment methods, and
therefore incur conversion losses."
In sharp contrast to the 1980s and early 1990s when China's
foreign exchange incomes were tightly controlled as a rare
resource, the rapid increase in forex reserves in recent years have
led to growing speculation among some economists over the need to
keep such a large pool of foreign exchange.
But the SAFE spokesman refuted that point of view on Friday,
saying the ultimate goal of holding forex reserves is to safeguard
a nation's macroeconomic stability, maintain the credibility of the
government and its enterprises, as well as boost international
confidence in the Chinese economy and currency.
(China Daily December 11, 2004)