The Chinese government is unlikely to buy large amounts of gold as a means to diversify its US$2.39 trillion worth foreign exchange reserves, a senior official said, while stressing that "the US treasuries market is very important for China."
But the official cast no light on the prospects for the renminbi (yuan), which has been traded at around 6.83 per dollar since mid-2008, a move some countries speculate keeps the value of renminbi "artificially low" and helps Chinese exporters weather the global credit crunch.
"Gold cannot be a major investment to diversify foreign exchange reserves" as purchases could push up gold prices sharply. Also, the average long-term returns on investment in gold are low, Yi Gang, head of the State Administration of Foreign Exchange (SAFE), said on Tuesday (March 9) at a news conference.
Despite price rises in recent months, "gold prices have had drastic ups and downs in the past three decade or so, and the average returns are not very good." According to SAFE figures, China's gold holdings surged to 1,054 tonnes in 2009 from 454 tonnes in 2003. The reports suggested gold purchases could help China reduce the risk of holding large volumes of US dollar assets as a major part of its foreign exchange reserves.
The SAFE head also emphasized that "the US treasuries market is very important for China. There is no doubt both countries benefit from China's treasuries investment." Some US legislators fear that China could gradually reduce its holding of US treasuries after relations turned sour as a result of recent spats over several issues.
On currency policy, Yi, also vice-governor of the People's Bank of China, reiterated that China would keep the currency basically steady. But Yi said expectations of a stronger yuan would intensify this year, attracting "cross-border arbitrage" funds, because of the country's relatively high interest rates.
