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Home >> Opinion
UPDATED: 13:30, December 14, 2004
Five hows and whys about China's foreign exchange
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Whether a big sum of 1 trillion US dollars hot money in hand mean to gamble on the revaluation of the People's Currency?

Reporter: According to the report from the web there are several hundreds of billions or even trillion of US dollars of international hot money which are now gambling on the revaluation of the People's Currency, is it true or not?

Spokesman: The so-called "hot money" refers to the speedy-flow and short-term capital, which intends to benefit by way of speculation. So far the capital count in China has not yet fully opened to the outside and so it's very hard for the speculative capital to get in boldly and openly on an extensive scale. Although there exist some loopholes in the financial market and is plausible to be exploited by the international speculative capital yet it has to pay a very high price for it and hardly for it to rouse a big impact here in China. What deserves our attention is we've discovered that there are some false reports in the import and export prices under the present trading items, a forgery of advanced collection of goods payment yet actual postponement in payment while the direct investment items are not true to the fact with abnormal phenomena to appear in excessive loans and the manipulation of the real estate market, etc. This is quite likely aiming at arbitrage by way of speculation.

This year we've already investigated and dealt with a batch of such cases and we'll continue to make a clamp down on them later by monitoring and controlling closely on the capital flows and strengthen the weak links in time and deal a heavy blow at those behaviors in violation of the regulations and laws in foreign exchange trading and speculative activities. In the meantime, we'll continue to push ahead the convenience for investment trade, encourage the inflow of the medium-and-long-term capitals and step up the strategy of "going out", thus furthering the opening to the outside world.

Is it normal for residents to vie with one another in the settlement?

Reporter: Sometime ago people and enterprises in some places vied for the settlement, which formed a sharp contrast to that when people vied for buying in the foreign exchanges a few years ago. Is this a normal case or not?

Spokesman: In the past when a tight control was laid on the foreign exchange China in order to encourage foreign exchanges from overseas Chinese and for tourism and maintain the interests of residents and non-residents permitted personal possession of foreign deposits and cashes. This is a case rarely seen in the world. And later on we loosened gradually for enterprises to open their own foreign exchange accounts. In line with the present regulations and laws the governmental departments should not meddle with how the enterprises and individuals arrange their own financial property structure. According to the general principle for risk management the possession of financial property should be in conformity with the sources and uses and not let mistakes to appear in the arrangement of currency and its terms. If to change one currency into another in a blind way and to change it back when necessary later on it will be quite likely to increase a lot of cost for the exchange.

Is it true that China has made a big reduction in the holding of the US dollar reserve?

Reporter: According to the foreign media China has reduced and sold out a lot of USD capitals in the management of foreign exchange reserve? I would like to ask whether the case is true or not?

Spokesman: The report goes totally against the fact. China's foreign exchange reserve structure and management have taken such factors as the reality of the national economic development, foreign trade payment, foreign debt structure and the situation of the market condition into full consideration with the decision made on the basis of scientific demonstration. We pay a great attention to the changing situation in the foreign exchange market but will not restructure the currency structure due to a short-term market fluctuation. China is an investor highly responsible for the international market who will voluntarily maintain the security and stability of the international market and so it will never join in the speculative manipulation of the exchange rate.

How's your comment on the sayings that the loss has happened in China's management of foreign exchange reserve?

Reporter: Now there is a saying outside that due to the great reduction of the US dollar exchange rate a great loss has happened in the management of China's foreign exchange reserve that leads to the shrinking of the reserve capital, and so I would like to ask, what's your comment on the saying?

Spokesman: the prevailing financial system of the international currencies has decided that the exchange rates of the major currencies will often show drastic changes no matter whether it's the US dollar, Japanese Yen, Eurodollar or British pound sterling. This is the reality that we have to face with. To cater to this market environment we've already come to form a relatively matured management operation system and mechanism.

First and foremost, China has always been adhering to the "security, circulation and value-adding" principle in the management and operation of the foreign exchanges and they are regularly managed and operated by special organizations and personnel of professional knowledge with a system established for complete investment decision-making, risk management and for internal management and control as well. In combination with national condition and the special features of the central bank (PBOC) for the management of foreign exchange reserve it has established an operational management pattern with the investment standard at its core.

Secondly, China carries out the handling for the foreign exchange reserve structure in accordance with the long-term and strategic structure standard without taking the advantage for profiteering from a short-term exchange fluctuation. If not to engage in the exchange of currencies or not to use them actually the increase or decrease of the value brought about by the changing of exchange rates for the reserve can only be indicated in account and will not have any immediate effect of gains or losses. And after a period of time it's possible to have another new change in the market exchange rates.

Thirdly, China has already taken into full consideration the needs for overseas payment when China was deciding its currency structural standard of foreign exchange reserve. And so there is no such thing as to change the US dollars into other currencies due to the shortage of the currency in the actual payment, thus causing the probability of the loss in the exchange trading.

Is it the case that the loss outweighs the gain when China holds in its hand a lot of foreign exchange reserves?

Reporter: There is still another kind of view in society, holding that the foreign exchange reserve faces a big risk and a very high cost. Is it the case that the loss outweighs the gain when China holds in its hand a lot of foreign exchange reserves? So I'd like to ask for your opinion on this viewpoint.

Spokesman: a reasonable scope and scale of foreign exchange reserve for a country is a very complicated question. The foreign exchange reserve held by the central bank (PBOC) is fundamentally for maintaining a macro-economic stability. This is the fundamental interest of the state. It is not only good for strengthening the international settlement, maintaining the credibility of the government and enterprises in the outside world, thereby raising in China and in the world the confidence for the Chinese economy and the people's currency, but also good for coping with the unexpected events, preventing from the happening of systematic financial risk and maintaining the security of the national economy.

It is sure that certain amount of cost is necessary for the keeping of foreign reserves. Any central bank of any country will have certain amount of cost in currency operations. However, should the overall macro-economy or financial system be mired into a vibration or even crisis the whole country and society will have to pay a hell lot of cost for it. The state exchange reserve is not to be put there for no use but to put into the international financial market for operation and producing certain amount of benefits. At present, China enjoys a higher reputation in the international banking business circle in its policy and achievement as regards the foreign exchange management and operation. So far as I know the financial situation in the central bank (PBOC) go fine and there is no such thing as the loss suffered as the media put it.

By People's Daily Online

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