China Won’t Suddenly Change ‘Stable’ Reserve Policy, Zhou Says

By Stephanie Phang

June 29 (Bloomberg) -- China has a “very stable” foreign currency reserve policy that won’t be suddenly changed, central bank Governor Zhou Xiaochuan said.

“Our foreign exchange reserve policy is always quite stable,” Zhou told reporters at a central bankers’ meeting yesterday in Basel, Switzerland. “There are not any sudden changes.”

The People’s Bank of China on June 26 renewed its call for a new global currency, fueling speculation it will diversify its currency reserves, the world’s largest at more than $1.95 trillion. The comment, made in the central bank’s 2008 review, caused the dollar’s biggest decline against the euro in a month.

China’s reserve policy is aimed at “liquidity, safety and returns,” Zhou said. “You should realize it’s very stable.”

Chinese investors, the biggest foreign owners of U.S. Treasuries, cut holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

At the end of 2008, the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the International Monetary Fund in Washington.

China and Brazil in May began studying a proposal to move away from the dollar to settle trade and use yuan and reais instead.

‘Currency Swaps’

“We are discussing it,” Zhou said. The aim is to use local currencies “for some trade settlement and project investment. That’s the major thing, it’s not really to use currency swaps.”

Asked about China’s economy, Zhou said it may have grown more in the second quarter than in the first, when gross domestic product rose 6.1 percent from a year earlier, the slowest pace in almost a decade.

“I see that prevailing predictions are that the second quarter is a little bit better than the first quarter,” Zhou said.

Exports have slumped in the face of recessions in the U.S., Europe and most of China’s trading partners.

Still, China’s economy will grow 8 percent this year and achieve more than 9 percent annual expansion in 2011, Cheng Siwei, former vice chairman of the standing committee of the National People’s Congress, said on June 27.

To contact the reporter on this story: Stephanie Phang in Basel at sphang@bloomberg.net