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China urged to hold more euro, yen

China should increase its holdings of euro and yen in its foreign exchange reserves, said a researcher with the People's Bank of China.

The United States dollar should retain the largest weight in the reserve, but with a smaller proportion, said Zhou Hai in an opinion piece in today's Financial News. The newspaper is affiliated with the central bank.

"The holdings of euro and yen should be increased to reflect China's growing trade with the European Union and Japan," Zhou wrote. "China should improve the yuan's exchange-rate mechanism and use monetary policy tools reasonably to lessen the need for passive purchase of foreign currencies."

He added China is working to maintain an "appropriate" size of currency reserves to reduce pressure on inflation and the yuan"s appreciation.

China's foreign exchange reserves hit a new high of US$2.27 trillion by the end of September, up 19 percent from a year earlier. Two-thirds of the reserves are presented in the US dollar.


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