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October 27, 2009

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Home » Business » Economy

Call to hold more euros, yen

CHINA should increase the holdings of euros and yen in its foreign exchange reserves, said a senior official with the People's Bank of China, the central bank.

The United States dollar should retain the largest weight in the reserves relative to the other currencies, but its size could be cut, said Zhou Hai in his article carried by the Financial News yesterday. The newspaper is affiliated with the PBOC.

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

He added China is working to maintain an "appropriate" size in its currency reserves to reduce pressure on inflation and the need to appreciate the yuan.

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

The greenback has continued to weaken in recent months. The US dollar index, where the greenback is measured against other major currencies, hit a 14-month low earlier this month.

China is concerned over the safety of its rising US assets and has called for diversification. In June, China cut its holdings of US Treasury bills by 3.1 percent, the largest reduction in nearly nine years. The Treasury Department said China's holdings of the bills totaled US$797.1 billion in August.


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