China wants more euros in forex reserves: report
Posted: 01 June 2007 1231 hrs

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BEIJING : China wants the euro to make up a larger share of its 1.2 trillion dollars in foreign exchange reserves, state media said Friday, citing a central bank deputy governor.

The move is motivated by the stability of the euro and the strong growth in the European economy, Wu Xiaoling said, according to the China Securities Journal.

However, the central bank does not plan to reduce the ratio of the US dollar in its forex reserves, she said, speaking at an economic forum in Brussels.

She was not quoted as saying what kind of assets would get a smaller weighting in the reserves as a result of giving euro-denominated assets a bigger weighting.

China's plans for its forex reserves are monitored intensely by the global markets as any decision to buy more euro-denominated assets could potentially put significant upward pressure on the euro.

It is believed that currently about 70 percent of its reserves are in US-dollar assets, exposing China to a financial loss due to the steady decline of the American currency.

Wu also said China would not quicken the pace at which the Chinese currency, the yuan, is appreciating, despite growing pressure from trading partners, according to the newspaper.

China revalued the yuan by 2.1 percent in July 2005 and since then has allowed it to gain about five percent more.

The central bank widened from May 21 the yuan's daily trading limit against the dollar, allowing it to move as much as 0.5 percent either side of a daily reference rate, up from 0.3 percent.

However, for many of China's major trading partners, especially the United States, the gains are viewed as far too slow, with Washington persistently demanding Beijing quicken the pace of the reform so as to reduce a massive and growing trade gap between the two countries.

- AFP/ir