China to stop accumulating foreign reserves - Zhou
GUATEMALA CITY, March 20 (Reuters) - China will stop stockpiling its massive foreign reserves, China's central bank governor Zhou Xiaochuan said in an interview published on Tuesday.
"Many people say that foreign exchange reserves in China are (already) large enough," Zhou told the Emerging Markets magazine, whose latest issue was released at a meeting of the Inter-American Development Bank in Guatemala.
"We do not intend to go further and accumulate reserves," Zhou said, adding the government will "cut a small piece of reserves" for a new agency to be set up by China's central bank and finance ministry to manage its massive foreign reserves, which have swollen because of the trade surplus.
He said the agency would begin operating this year and focus on profitability and absorbing liquidity, although he did not say how much money would be passed to it.
China's premier, Wen Jiabao, said last week that plans to form a new agency to invest part of the country's swollen foreign exchange reserves, the world's biggest at more than $1 trillion, would not have an adverse impact on the U.S. dollar.
China's central bank also said last week it would not significantly adjust the composition of those reserves. A large part of them are denominated in dollars.
As the reserves have ballooned on the back of China's record trade surpluses, demands have grown for part of the hoard to be invested more aggressively.
Investors have long fretted over Beijing's plans to diversify its foreign exchange investments because of their potential impact on global markets.
Studies have shown investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by as much as 2 percentage points.
The original interview with Zhou can be found at www.emergingmarkets.org
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China reserve comments send dollar lower vs yen
Tuesday, March 20, 2007 12:13:42 PM (GMT-06:00)
Provided by: Reuters News
(Updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, March 20 (Reuters) - The dollar fell sharply against the yen on Tuesday, surrendering earlier gains after a magazine reported that China would stop stockpiling foreign exchange reserves.
But analysts said People's Bank of China Governor Zhou Xiaochuan might have been misquoted, since China's $1 trillion stash of reserves will keep growing as long as its central bank keeps buying dollars to keep the yuan from appreciating, a practice it has shown no sign of abandoning any time soon.
Zhou was quoted by Emerging Markets magazine, a Euromoney publication, as saying "many people say that foreign exchange reserves in China are (already) large enough. We do not intend to go further and accumulate reserves."
The magazine was released during a meeting of the Inter-American Development Bank in Guatemala.
"Most people in the market just assumed he was misquoted and the intention wasn't that they were going to stop accumulating reserves, but more that they would stop accumulating reserves in the same way as they are now," said Camilla Sutton, foreign exchange strategist at Scotia Capital in Toronto.
The dollar dipped to 116.97 yen <JPY=>, down 0.5 percent from levels seen late on Monday. It had touched 118.01 in overseas trade.
The euro was 0.4 percent lower at 155.76 yen <EURJPY=> after hitting 156.96 earlier. Against the dollar, the euro traded at $1.3312 <EUR=>, up 0.1 percent.
Sterling <GBP=> rallied broadly after above-forecast inflation data boosted the case for higher British interest rates, while the dollar fell 1.2 percent against its Canadian counterpart to trade at C$1.1617 <CAD=>, a three-week low
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