US-dollar assets 'key to foreign reserves'
PBOC official denies claims of sell-off plan
The government made further attempts yesterday to counter speculation sparked by last week's report by a British newspaper that Beijing would sell off its vast US dollar reserves should Washington impose trade sanctions.
In an apparent response to The Daily Telegraph report last Wednesday, an unnamed central bank official was quoted by Xinhua as saying that US-currency assets, including government bonds, were 'an important component' of the mainland's foreign-reserve investments.
The People's Bank of China official's remark referred to 'western media's reports that China is threatening to carry out a massive sell-off of US dollars', Xinhua said. The remark is a further sign that Beijing wants to underscore its commitment to holding US-dollar assets and calm investors.
The Daily Telegraph's report prompted a response from US President George W. Bush, who warned that any such pressure by Beijing would be 'foolhardy'.
'China is a responsible investor in international financial markets, and our country's foreign-exchange reserves are managed with the operational goals of safety, liquidity and profit,' the official said.
'The US dollar occupies an important position in the international monetary system. The US financial markets have high volume and great liquidity,' the official said, adding that the US dollar remained a mainstay of the mainland's foreign- exchange reserves.
The central bank official also highlighted the important role of US-mainland economic ties in underpinning the stable development of the global economy.
'US-China economic and trade relations are closely interrelated. This has a stabilising role, not only for the two economies but for the world economy.'
The mainland's US$1.3 trillion in foreign-exchange reserves are the largest in the world and are believed to be comprised largely of US-dollar assets, potentially giving Beijing enormous sway over the dollar's value and currency markets worldwide.
Beijing and Washington have squabbled over the yuan, which the US claims is kept artificially cheap to give mainland exporters an unfair advantage. Beijing says it will make the yuan exchange rate more flexible at its own pace.
The US Congress has recently stepped up pressure on Beijing to appreciate the yuan, with some senators pushing for bills that would slap tariffs on mainland goods. Recent safety concerns about mainland imports have bolstered their argument.
US Treasury Secretary Henry Paulson has stressed the need to make the yuan more flexible and avert action by Congress.
I.O.U.
According to the US Department of State, Beijing held US$820b in US assets in 2005. Of the US national debt, this accounts for just under 10%
