SAFE reiterates no direct forex loss on yuan's rise

17:29, July 20, 2011      

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China's foreign exchange regulator reiterated Wednesday that an appreciation of China's currency renminbi, or yuan, will not directly result in a loss of the country's foreign exchange reserves.

Value changes in foreign exchange reserve assets only happen when they are converted to yuan, the State Administration of Foreign Exchange (SAFE) said in a statement on its website.

"Currently China does not need to repatriate forex reserves massively," it said.

Currency fluctuations only reflect a change to the book value, it said, adding it is not an actual loss and does not affect real purchasing power of the forex reserves.

Government data shows China's forex reserves totaled nearly 3.2 trillion U.S. dollars by the end of June.

The statement echoed the stance the SAFE voiced in May, which was made after a government researcher said in an essay that China likely suffered an accumulated loss of around 271 billion U.S. dollars on foreign exchange reserves since 2003 because of the yuan's appreciation.

However, excessive growth and size of foreign exchange reserves pose challenges to the management, SAFE said, adding it will accelerate reform of the formation mechanism of the yuan exchange to promote an international balance of payment.

SAFE also called for the United States government to take "concrete and responsible measures" to strengthen confidence in the international financial market and respect and secure investors' interests.

The call was made after credit rating agencies such as Standard & Poor warned the U.S. government about its growing sovereign debt.

China is by far the largest holder of U.S. debt, with holdings at 1.153 trillion U.S. dollars by the end of April.

SAFE added that using China's forex reserves to make large-scale investments in global commodities, such as gold and oil, would hurt domestic consumption and economic development as the move would increase the price of commodities.

Source: Xinhua
 
 
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