No cut in dollar reserve holding: Central bank

Updated: 2006-03-06 15:38

The country will not reduce its holdings of U.S. dollar-denominated assets in its foreign exchange reserves, central bank chief Zhou Xiaochuan said yesterday.

However, Zhou, governor of the People's Bank of China, did not say whether the proportion of U.S. dollars in the reserves would rise or fall.

China's central bank governor Zhou Xiaochuan speaks in this undated file photo. Zhou said that China will not reduce its holdings of U.S. dollar-denominated assets in its foreign exchange reserves March 5, 2006. [Xinhua]

Zhou said there had been market speculation that China might reduce its U.S. dollar holdings.

“The foreign exchange reserves are still growing. Some people are concerned that the amount of U.S. dollar assets in the reserves will fall. But that's not the case,” Zhou said.

China had US$818.9 billion in reserves at the end of 2005. It does not disclose the composition of the stockpile.

Zhou said China would adjust the mix of its reserves in light of global market conditions. In doing so, China's criteria would be safety, liquidity and profitability, in that order. He did not elaborate.

The Securities Times quoted an influential economics professor as saying Friday that China has three times more foreign exchange reserves than it needs and should cut them accordingly.

“China's foreign exchange reserves hit US$818.9 billion at the end of last year, but they should not exceed US$250 billion,” Beijing University professor Xiao Zhuoji told the paper in an interview.

The government should also ease its control on foreign exchange and make better use of the reserves, which are predominantly invested in short-term U.S. treasury bills with low returns, Xiao added.

“That's like allowing foreign countries to use our money cheaply,” he said.

In similar remarks published by domestic media last month, Xiao proposed reducing the dollar share of the reserves to curb risks posed by the instability of the U.S. currency.

(Source: Shenzhen Daily/Agencies)