Dollar assets should be cut: official

08:50, January 06, 2011      

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China should cut holdings of dollar assets to limit losses on its foreign currency reserves, while letting the yuan move more freely, a former adviser to the People's Bank of China said in comments published Wednesday.

"China should now reduce its holdings of dollar assets as far as possible, rather than increasing holdings," Yu Yongding, a member of the central bank's monetary policy committee until 2006, wrote in an article in the latest edition of Caijing magazine.

"This means the central bank, to avoid further rises in foreign exchange reserves, must reduce its intervention in the foreign exchange market," he said.

"Reducing intervention means the exchange rate will appreciate in line with market supply and demand," Yu Yongding added.

China's foreign exchange reserves, the world's largest, hit a record $2.65 trillion at the end of September, a reflection of heavy-handed intervention to hold down the yuan's value.

The government must let the public know that modest yuan appreciation is in line with China's own interests and is not bowing to US pressure, Yu wrote.

Yu, a professor at the Chinese Academy of Social Sciences, has long championed a more market-driven exchange rate regime.

Yu has also long held a bearish outlook on the US dollar.

Monetary easing to stimulate the flagging US economy may in reality fuel US public debt and inflation, which in turn pointed to persistent dollar weakness, he said.

The real purpose of the policy easing was to accelerate the dollar's depreciation and boost US export competitiveness, he said.

Source: Global Times
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