Financial Times - November 26, 2004
Dollar recovers on denial China cutting US treasuries By Mure Dickie
BEIJING -- The dollar recovered from a record low against the euro and a five-year nadir to the yen after a Chinese official denied a report that China had trimmed the amount of US treasury bonds in its portfolio.
The China Business News, a Shanghai-based newspaper launched recently by some of China's biggest media groups, quoted Yu Yongding, a member of the central bank's advisory monetary policy committee, as saying Beijing had cut the proportion of foreign exchange reserves held in dollars.
China Business News quoted Prof Yu as "revealing" that the rate of increase of holdings of US government bonds had fallen and total holdings were currently around US$180 billion.
However, Prof Yu said the report was an erroneous account of an off-the-record address to students in Shanghai and stressed that he had no personal knowledge of the composition of China's foreign exchange reserves or reserve strategy.
Nonetheless financial markets reacted to the report. The euro strengthened to a record $1.3330 against the dollar before falling to $1.3240, from $1.3269 in New York on Thursday. The greenback also rose against the Japanese currency to Y102.69.
Prof Yu, a respected professor of economics, said he had merely quoted statistics from the US Federal Reserve supplied to him by friends at a foreign investment bank.
Statistics on the US Treasury Department's website show mainland Chinese holdings of treasury securities totalled US$174.7 billion at the end of September, up from US$172.3bn at the end of August.
Meanwhile China's foreign exchange reserves rose from US$496.2 billion to US$514.5 billion, suggesting a fall in the proportion of reserves held in treasury bonds.
The recent slide in the dollar has provoked widespread discussion in China about the possible losses being suffered because of the country's enormous foreign exchange reserves. Beijing does not give any breakdown of its reserve holdings.
"I think the Chinese monetary authorities are very clever and they must already have taken action," Prof Yu said. "But I have no information whatsoever about what they are doing."
Prof Yu is currently a member of the People's Bank of China's monetary policy committee, a consultative body that groups senior officials from a number of ministries and departments and a single academic and which usually meets four times a year.