China must take more measures to dampen expectations of a "quick and big" appreciation of renminbi (RMB), the Chinese currency, or yuan, said a senior official.

 

Hu Xiaolian, director of the State Administration of Foreign Exchange (SAFE), said in the latest issue of the Emerging Markets magazine that the measures should help curb the inflow of a great deal of speculative funds into China.

 

But Hu did not elaborate on what measures would be taken.

 

She also said China had diversified its foreign exchange reserves by increasing reserves of the won, the currency of the Republic of Korea and other foreign currencies, while reducing the reserves of US dollars over the past few years.

 

Large adjustments to China's foreign exchange reserves were unnecessary, said Hu, also deputy governor of the People's Bank of China (PBC), the central bank.

 

She said the PBC would reduce the frequency and scope of its interference in the foreign exchange market in "an orderly and gradual way".

 

By the end of July, China's reserves hit US$954.5 billion.

 

The huge reserve has exerted pressure on the RMB to appreciate, with the US administration threatening to impose punitive tariffs on Chinese imports unless further appreciation is allowed.

 

The ever increasing reserve also brings risks for its managers, such as the risk of a major dollar depreciation or collapse, as most of the reserve has been invested in US treasury bonds.

 

(Xinhua News Agency September 19, 2006)