China has no plans to use its soaring foreign exchange reserves
to build up a strategic oil stockpile, a central bank official said
on Friday.
Ji Min, financial market division chief of the research bureau
of the People's Bank of
China, told a forum that the nation's more than US$700 billion
forex reserves are still being held exclusively in non-tangible
assets, mainly financial assets and portfolio investments.
Some researchers have said China should use part of its forex
reserves to buy crude oil, but senior officials have said the
current high prices in the international market would make it a bad
move.
China's forex reserves expanded rapidly in recent years, largely
as a result of its trade surpluses and expectations of local
currency revaluation.
The rapid growth has also prompted debate about the necessity of
holding forex reserves as large as China's, which are the world's
second largest behind Japan.
Sceptics say the reserves, mostly held in United States'
treasury bonds and other government bonds, are not being used
profitably enough given the relatively low returns on bonds,
although others argue that the role of forex reserves is mainly to
protect financial security of a nation in stead of making
profits.
The faster than desired growth in forex reserves has also
frustrated China's central bankers, as they have to increase local
money supply, which runs contrary to the strong need to contain
inflationary pressures, so as to maintain the floating band of the
local currency, or renminbi.
But the nation's unfolding plan to reform its exchange rate
system, which aims to improve flexibility, is supposed to be
reducing such pressures as it helps dissipate speculation, a strong
force driving up forex inflows.
After changing a decade-old exchange rate forming mechanism to
one with reference to a currency basket instead of the US dollar
two months ago, the Chinese central bank yesterday further
broadened the floating band of the renminbi to give banks more
flexibility in pricing.
The floating range for renminbi against non-US dollar currencies
in the interbank cash market has broadened to?3 percent
from?1.5 percent previously.
The renminbi appreciated 2 percent against the US dollar in the
July-21 reform to 8.11 yuan.
(China Daily September 24, 2005)