Aol money reports that China has reassured the US it is a firm holder of US treasuries.
China is a responsible investor in international financial markets, and our country’s foreign exchange reserves are managed with the operational goals of safety, liquidity and profit,” Xinhua quoted the central bank official as saying. The People’s Bank does not disclose the composition of the foreign exchange reserves, which have swelled in recent years as China’s exports surged and investors poured money into the country to profit from an economy now in its fourth straight year of double-digit growth. But the reserves have become a political issue both within China and between Beijing and Washington. As the dollar has fallen in value, the People’s Bank has come under pressure to diversify its holdings to maintain the value of the reserves and improve returns.
China has scrapped rules that required local companies to convert a portion of their foreign earnings into Chinese currency, the government said Tuesday, in a move that could ease pressure on Beijing’s foreign exchange system. Companies now will be allowed to decide on their own how to use money earned abroad, the State Administration of Foreign Exchange said on its Web site. Previous rules requiring companies to convert at least 20 percent of foreign earnings into Chinese yuan boosted demand for the currency, increasing pressure for it to rise against the U.S. dollar and other foreign currencies.
The latest change could help to slow the growth of China’s $1.3 trillion foreign reserves accumulated by the central bank as it tries to curb pressure for prices to rise by draining money from the economy through bond sales. “This policy revision is an important reform in foreign exchange management,” the agency said on its Web site. “The implementation of the new policy will improve the autonomy and convenience of domestic companies, strengthen companies’ capital management and improve the international balance of payments.”
Until 2002, Chinese companies were required to bring home all the money they made abroad and obtain government permission to make new foreign investments. Beginning in 2002, companies were allowed to keep 20 percent of foreign revenues. That was raised to 50 percent in 2004 and 80 percent the following year.
Is this a quiet move to loosen reliance on US treasuries? What else does it accomplish?