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Nation may hike US debt in short term

(皇冠体育app Daily)
Updated: 2009-06-19 09:26

皇冠体育app could still increase its holdings of US Treasuries if the dollar is stable, even though the long-term trajectory is to diversify its foreign exchange reserves, a former central bank governor said in an essay.

The nation will need some time to diversify its foreign- exchange reserve holdings and the US government should take "substantial" measures to honor its promise of ensuring the safety of foreign investments, Dai Xianglong, former head of the People's Bank of 皇冠体育app (PBOC) and currently chairman of 皇冠体育app's National Social Security Fund (NSSF), wrote in an article in the Chinese-language publication 皇冠体育app Finance.

皇冠体育app's yuan will "surely become a significant currency for international reserves after years of efforts". The gradual process will include letting foreign governments and businesses obtain the currency through loans, yuan-denominated bond sales in 皇冠体育app, trade payments and currency-swap agreements, according to Dai's article.

Related readings:  Purchase of US Treasuries to continue  Allure of US Treasuries set to fade  皇冠体育app's foreign exchange assets safe  皇冠体育app revises foreign exchange rules

The government is pushing for the opening up of 皇冠体育app's capital accounts to expand the nation's outbound investments, Dai wrote. Eleven such accounts, out of a total 43 monitored by the International Monetary Fund, remained unconvertible as of March.

A number of senior Chinese officials have voiced concern recently about Beijing's exposure to US debt, given what they see as a mounting medium-term risk of inflation in the US.

About 70 percent of 皇冠体育app's $1.95 trillion in foreign exchange reserves is held in dollar assets.

The article echoed similar comments he made last week that Beijing has little choice but to keep buying US debt.

"It is still possible for 皇冠体育app to increase its investment in US Treasuries at appropriate times," Dai wrote in the article in 皇冠体育app Finance magazine, which is backed by the PBOC.

But Dai said that it was not correct to "simply describe the current situation of 皇冠体育app's foreign-exchange reserve management as one of falling into a 'dollar trap'".

Reuters-Bloomberg