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Beijing will not dump US dollar: currency official

The official in charge of China's huge foreign currency reserves said over the weekend that his country had no plans to sell dollars and also ruled out any "large-scale" appreciation of China's currency against the dollar.

The series of unusually blunt comments by Guo Shuqing (郭樹清), director of the State Administration of Foreign Exchange and a vice chairman of the central bank, may reassure currency traders that China will not push down the value of the dollar by dumping its holdings in favor of currencies that have been stronger in the last year or two, like the euro. With US$609.9 billion in foreign exchange holdings at the end of last year, China has the world's second largest reserves, after Japan.

But Guo's opposition to any significant appreciation of the Chinese currency, the yuan, is also a setback to efforts by the US, the EU and Japan to blunt China's growing share of global trade by urging that Chinese officials let the yuan's value rise.

Guo appeared to be trying to address an undercurrent of popular dismay in China over the rapid accumulation of dollar-denominated assets even as the dollar has weakened. Chinese media, though subject to censorship, have published numerous articles recently asking if the nation has lost money by investing so heavily in dollars.

The official New China News Agency on Sunday carried a rare defense and explanation of Chinese currency policies by Guo.

"We will not adjust the structure of our foreign exchange reserves according to short-term fluctuations," he was quoted as saying on Saturday on the sidelines of a meeting of the Chinese People's Political Consultative Conference, an advisory group.

"If we sell US dollars now when it is tumbling, it means we lose money. If we do sell them, we have to buy other currencies such as the euro. But what if the euro drops?" he said.

Liang Hong (梁紅), a Goldman Sachs economist in Hong Kong, said Guo might have felt compelled to speak publicly because the National People's Congress, the nominal legislature, has convened for its annual session.

"Each time at this time of year, they have to respond to these questions, probably raised by NPC members, so they have to defend that," she said.

China's foreign reserves have tripled since 2001, but oil prices have more than doubled since then, so the buying power of the reserves has not risen as fast, Liang said.

In separate comments to domestic and foreign news media on Saturday at the conference, Guo ruled out allowing the yuan to float freely and said no large-scale appreciation would be permitted. But like other Chinese officials over the last four years, he hinted at the possibility that Beijing would at some point tolerate greater flexibility in the exchange rate, now effectively fixed at 8.28 to the dollar.

"As for how to determine the range, it depends on actual circumstances," he said, according to Reuters.
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