Raise gold holdings, China told

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Raise gold holdings, China told

 

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Raise gold holdings, China told

 

China should take advantage of any weakness in bullion prices to build up its official gold holdings as part of a strategy for diversifying its foreign exchange reserves, a senior government economist said Monday.

 

Tuesday, July 04, 2006

 

China should take advantage of any weakness in bullion prices to build up its official gold holdings as part of a strategy for diversifying its foreign exchange reserves, a senior government economist said Monday.

Xia Bin, head of the financial research institute of the Development Research Center, a think tank under the Cabinet, also proposed that Beijing allow the yuan to fluctuate within a wider range against the dollar.

 

"It is practical for China to increase its holdings of gold by choosing an appropriate time to buy, because compared with other big trading countries the percentage of gold in China's reserves is seriously low," Xia said in an article on his agency's Web site.

 

Xia also suggested China establish an international investment fund with the aim of increasing returns from its US$900 billion-plus (HK$7.02 trillion) stockpile of reserves.

 

Chinese individuals should be permitted to buy into the fund, which would allow them to hold foreign exchange indirectly, he wrote.

 

The economist also recommended that China could use part of the foreign reserves to support its companies in carrying out mergers and acquisitions abroad, and to help them import key equipment, raw materials and core technologies.

 

Xia also recommended that Beijing allow the yuan to trade more freely, because that would help ease pressure on monetary policy.

 

The yuan is allowed in theory to rise or fall by 0.3 percent against the dollar on a given trading day, but in reality it has fluctuated by only a fraction of that each day since the currency was freed from a dollar peg last July.

 

Xia said that even if China increased its exchange rate greatly, the United States would still have a large trade deficit because part of the Sino-US trade gap would be replaced by those between the United States and other southeast Asian nations. REUTERS

 

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