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Central Bank proposes that people hold forex reserves
www.chinanews.cn 2006-03-21 14:04:37
Chinanews, Mar.21 - No longer "easy entry tough exit", changing "state
holding reserves" to "people holding reserves", encouraging enterprises
to "venture outside" -- the Central Bank raised three measures to resolve
the issue of forex reserves growing too rapidly.
At the "annual expert conference for analyzing, predicting and
prospecting China's 2006 financial situation" held on the 18th, deputy
governor Wu Xiaoling said that forex reserves growing too fast was a
reflection of imbalances in international intake and outflow and the
result of China's long-standing policy of encouraging exports,
encouraging foreigners to make direct investments and an "easy entry
tough exit" currency policy. In recent years, China's forex reserves have
grown rapidly. Statistics show that in 2003, China's forex reserves stood
at US$403.2 billion, rising to $609.9 billion in 2004 and reaching $818.9
billion by the end of 2005, taking up second place in world ranking.
Wu indicated to preserve balanced international receipts and outflow, a
country must use adjustment policies to accelerate structural adjustments
and step by step realize a balance in international money flows. Three
such adjustment policies include: 1) continue adjusting "easy entry tough
exit" currency policy to resolve the policy foundation for forex reserves
to grow too rapidly; 2) further expand the method of using forex
reserves, changing from "state holding reserves" to "people holding
reserves"; 3) orderly and, under control, widen the channels for capital
to enter and exit, stably promote investment overseas and establish a
complete structure to enable forex reserves flowing overseas to be
managed.
Li Lianzhong, director of the economics bureau of the Policy Research
Office of the CPC Central Committee, also indicated at the same
conference that enterprises should be encouraged to "go overseas", expand
international markets and turn forex reserves into reserves for natural
resources to ensure that the country can meet its energy and resource
needs. The financial sector should support enterprises "going overseas"
to take part in global competition.
Currency is the hot topic of the moment. Wu Xiaoling said that
flexibility in the currency regime would aid the adjustment of the
structure in international capital outflow and inflow, but large scale
movements in the currency would not be conducive to stable economic
development. Wu said, "Do not pay too much attention to the magnitude of
the RMB's rise or fall. This is a result of the market's operation. We
should continue to pay attention to our enterprises, our financial
institutions and whether our society has made good preparation towards
changes in the cost of capital."
Wu Xiaoling also said that the central bank would undertake experimental
work on expanding long-term interest rate forward agreements and
gradually launch standardized and non-standardized contractual derivative
products between foreign currencies versus the RMB.
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