Central bank: Dollar assets key part of China's reserves

(Reuters)
Updated: 2007-08-12 14:01

Dollar assets form an important part of its foreign exchange reserves and the US currency plays a prominent role in the global monetary system, China's central bank said Sunday.

The comments, made to the Xinhua news agency by an unidentified central bank official, follow a report last week by a British newspaper suggesting that Beijing could dump its vast dollar holdings if a trade war broke out with Washington.

"US dollar assets, including American government bonds, are an important component of China's foreign exchange reserves as the dollar enjoys a major position in the international monetary system based on the large capacity and high liquidity of US financial markets," Xinhua quoted the official as saying.

Britain's Daily Telegraph said on Wednesday that "the Chinese government has begun a concerted campaign of economic threats against the United States," and was hinting that it might liquidate its holdings of US Treasuries if Washington imposed trade sanctions.

The story caused a stir in global markets. US President George W. Bush said China would be foolhardy to dump dollars, while the top Republican on the US Senate Finance Committee wrote to the Chinese ambassador seeking clarification.

Asked about newspaper report, the central bank official said: "China is a responsible investor in the international capital markets."

His comments follow concerted liquidity injections on Thursday and Friday by global central banks to soothe investors' fears that spreading losses stemming from investments in subprime US mortgages could snowball into a global credit crunch.

Restating official policy, the official said Beijing's priorities in managing its $1.33 trillion in foreign currency reserves were safety, liquidity and investment returns.

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