Chinese Economist Says Dollar Reserve Growth Should be Reduced
Though it might help to answer questions about low long-term interest rates, I'm not anxious to find out will happen if China slows its accumulation of dollar based foreign exchange reserves:
Economist urges cut in dollar reserves, China View: The country should reduce the U.S. dollar share of its foreign exchange reserves because of the risks posed by the instability of the U.S. currency, influential economics professor Xiao Zhuoji said in an interview published yesterday. ...Xiao also proposed a number of ways to slow the explosive growth in the country’s reserves, which rose 34 percent last year to US$818.9 billion. “U.S. dollars account for most of our reserves, and the instability of the dollar increases foreign exchange risk. So we should take measures to cool down this extraordinary reserve growth,” ... He proposed adjusting the structure of China’s reserves to reduce currency risk ... Xiao is a Beijing University professor and a member of the standing committee of the Chinese People’s Political Consultative Conference, a body that advises the National People’s Congress. ... China could slow reserve growth by strictly controlling capital inflows and speeding up exchange rate reform, he said. For example, companies could be allowed to hold more foreign exchange, instead of being required to sell it to the central bank, and individuals could be permitted to invest in foreign currencies. Xiao also said China could also cut its trade surplus, which tripled last year to US$102 billion, by reducing resource-intensive exports and importing more high-tech products. (Reuters/China Daily)
Posted by Mark Thoma on Tuesday, February 28, 2006 at 12:07 AM in China, Economics, International Finance |
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