Business | Banking
China in dilemma over forex reserves
China's foreign currency reserves, already the world's largest, passed $1 trillion at the end of November, two central bank researchers said in a paper released on Saturday.
- AP
- Published: 00:00 January 14, 2007
Beijing: China's foreign currency reserves, already the world's largest, passed $1 trillion at the end of November, two central bank researchers said in a paper released on Saturday.
China's reserves have skyrocketed as the bank drains money from the economy by issuing bonds in an effort to contain inflationary pressures amid a flood of export revenues. The growth has prompted debate in China over how the country should use the mountain of money.
Reserves reached $1.039 trillion at the end of November, researchers Jiao Jinpu and Liu Xiangyun said in a paper released at a conference in Beijing, according to Dow Jones Newswires.
External experts had estimated earlier that China's reserves passed the $1 trillion mark in November. Since then, the reserves are believed to have risen to at least $1.1 trillion.
The central bank officially announces the size of its reserves only four times a year, and said in its last quarterly report they had risen to $987.9 billion by the end of September.
That mountain of money is equal to about 40 per cent of China's annual economic output and accounts for half of all Asian reserves. Japan has the world's second-biggest foreign reserves, which stood at $875 billion at the end of December.
The composition of China's reserves is secret, but economists believe about 70 per cent is in US Treasury bills, much of the rest in euros and a small amount in yen.
Purchases of assets in other currencies are believed to be growing as the bank diversifies its holdings.
Economist Stephen Green at Standard Chartered Bank in Shanghai said in a report last week that the central bank made an estimated $29 billion profit last year from its foreign assets.
The central bank has been forced to buy up tens of billions of dollars worth of currency every month in order to keep the flood of money from China's trade surplus, which reached a record $177.5 billion last year, from igniting inflation.
Beijing has begun easing currency controls in an effort to reduce such strains.
Economists are debating how China's reserves might be put to use to address pressing needs.
Some have suggested Beijing use the money to buy oil and other resources abroad for China's booming economy. Others say it could pay for more schools and social programmes.
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