Forex investment strategy revealed
By Zhang Fengming |
March 10, 2010, Wednesday
|
Print Edition
Print Edition
CHINA regards United States Treasuries as important but is wary about gold as an alternative when it comes time to diversify the world's biggest foreign exchange reserves, the nation's top currency regulator said yesterday.
China's forex reserves total US$2.4 trillion and attract global market attention with any sign of a portfolio shift.
"The US Treasury market is the world's biggest government bond market," Yi Gang, head of the State Administration of Foreign Exchange and deputy governor of the People's Bank of China, said in Beijing at a press briefing, on the sidelines of the National People's Congress session.
"Our forex reserves are huge, so you can imagine that the Treasury market is a key one for us," Yi said. "Our investment team buys and sells the Treasuries almost every day."
Yi said China's trade of Treasuries was natural market behavior and should not be politicized.
"China is a responsible investor and surely we can make win-win decisions in investments," he said.
China remained the largest foreign holder of US Treasury securities as of the end of 2009 with holdings of US$894.8 billion, according to data from the US Treasury Department.
China's forex reserves include the greenback, the yen, euros and currencies of emerging markets. The exact portfolio breakdown is unavailable.
Yi also cast a shadow of doubt over investment in gold, once considered a safe path. "Gold's investment return isn't good on a 30-year horizon as prices fluctuate widely, though prices have kept rising in recent years," he said.
China's buying of gold may also push up its price and make it less affordable for domestic consumers.
That's why China will be cautious when considering adding to its state gold cache, he said. China holds 1,054 tons of gold as the world's fifth-biggest official holder.
Its official gold stockpiles are valued at about US$30 billion, accounting for less than 2 percent of total forex reserves.
The nation's private gold cache amounts to more than 3,000 tons as Chinese have a tradition to buy it as a symbol of good fortune and safety.
It's also considered trendy to buy gold bullion and coins.
"Not putting all its eggs in one basket" was the principle China holds on its forex reserves investments, Yi said, adding: "China stresses the importance of diversification."
The country received pleasing returns on its forex reserves investments in 2008 and 2009 despite the global credit crunch, Yi said.
China did not touch risky areas, such as subprime mortgage-related products and collateralized debt obligations.
Yi said China would keep the yuan basically stable while the government continued to streamline its forex regime.
China has repeatedly rejected calls for the yuan's appreciation and said it was unfair to blame the local currency for global imbalances.
The yuan has been flat against the US dollar at about 6.83 since the middle of 2008.
China is expected to attract more capital inflow this year as "hot money," or short-term speculative capital, aimed at big returns on the yuan's eventual appreciation.
China's forex reserves total US$2.4 trillion and attract global market attention with any sign of a portfolio shift.
"The US Treasury market is the world's biggest government bond market," Yi Gang, head of the State Administration of Foreign Exchange and deputy governor of the People's Bank of China, said in Beijing at a press briefing, on the sidelines of the National People's Congress session.
"Our forex reserves are huge, so you can imagine that the Treasury market is a key one for us," Yi said. "Our investment team buys and sells the Treasuries almost every day."
Yi said China's trade of Treasuries was natural market behavior and should not be politicized.
"China is a responsible investor and surely we can make win-win decisions in investments," he said.
China remained the largest foreign holder of US Treasury securities as of the end of 2009 with holdings of US$894.8 billion, according to data from the US Treasury Department.
China's forex reserves include the greenback, the yen, euros and currencies of emerging markets. The exact portfolio breakdown is unavailable.
Yi also cast a shadow of doubt over investment in gold, once considered a safe path. "Gold's investment return isn't good on a 30-year horizon as prices fluctuate widely, though prices have kept rising in recent years," he said.
China's buying of gold may also push up its price and make it less affordable for domestic consumers.
That's why China will be cautious when considering adding to its state gold cache, he said. China holds 1,054 tons of gold as the world's fifth-biggest official holder.
Its official gold stockpiles are valued at about US$30 billion, accounting for less than 2 percent of total forex reserves.
The nation's private gold cache amounts to more than 3,000 tons as Chinese have a tradition to buy it as a symbol of good fortune and safety.
It's also considered trendy to buy gold bullion and coins.
"Not putting all its eggs in one basket" was the principle China holds on its forex reserves investments, Yi said, adding: "China stresses the importance of diversification."
The country received pleasing returns on its forex reserves investments in 2008 and 2009 despite the global credit crunch, Yi said.
China did not touch risky areas, such as subprime mortgage-related products and collateralized debt obligations.
Yi said China would keep the yuan basically stable while the government continued to streamline its forex regime.
China has repeatedly rejected calls for the yuan's appreciation and said it was unfair to blame the local currency for global imbalances.
The yuan has been flat against the US dollar at about 6.83 since the middle of 2008.
China is expected to attract more capital inflow this year as "hot money," or short-term speculative capital, aimed at big returns on the yuan's eventual appreciation.
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