MercoPress. South Atlantic News Agency

Beijing confirms US dollar as the leading global currency

The US dollar will remain the main currency for China's massive foreign reserves despite earlier suggestions that the weakening greenback weighed too heavily, a senior Chinese central bank official said here Wednesday.

Yi Gang, the assistant governor of the People's Bank of China, said the dollar had to continue as key component of the country's 1.4 trillion dollar reserves because it was "the largest currency that we use" in terms of trade and foreign direct investment as well as financial clearances and settlements. "It is also a very firm policy for China that in our reserves the US dollar is the main currency and that policy is very firm" he said to a question at a forum in Washington. Yi, who is also the central bank's director-general of operations, said recent suggestions by a senior Chinese politician as well as a state banker that Beijing shift its largely dollar-based reserves towards other stronger currencies, like the Euro, should be interpreted as a "personal opinion". "I think that probably it was a personal opinion ... if they want to express their opinion that will be fine, we will consider it, we listen to it, but that does not change our policy" Yi insisted at a monetary conference organized by Washington-based CATO Institute. Comments particularly by Cheng Siwei, vice chairman of China's national parliament, that strong currencies ought to be given more weight in the Chinese reserves to offset the losses in weak ones, sent the US dollar to record lows last week. The market chaos led Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Henry Paulson to defend the dollar's position. Noting that the greenback had been the world's reserve currency since World War II, Paulson said, "I put the US economy up against any in the world in terms of competitiveness." Yi said that while China's central bank diversified the major currencies making up its reserves, "the point is the principle for our diversification and the principle that guides us for these reserves is that it should be proportional to our real economic transactions -- meaning trade, FDI (foreign direct investment) and clearance and settlement." China's international reserves, which overtook Japan's for the world's top spot in early 2006 and topped 1.43 trillion dollars in late September, have been boosted especially by the Beijing's huge trade surplus. About 70% of China's foreign reserves are generally believed to be held in US dollar-denominated paper, principally US government bonds. This has proven a less-than-ideal investment, not just due to the low yields on government debt, but also the weakening of the US currency. Yi also addressed charges that the Chinese Yuan currency was being kept artificially low by Beijing to give Chinese exporters an unfair advantage, saying an undervalued Yuan "is not in the interest of China." "The exchange rate debate is an economic issue and we should do more economic analysis...and we should avoid (attempts) to politicize this issue and to make the matter more difficult" he added. At the end of the month the European Union top financial officers and the president of the European Central Bank, Jean-Claude Trichet will be traveling to Beijing to claim more "global financial responsibility" from China. EU trade deficits with China have set new records while the appreciation of the Euro is hurting Europe including German exports.