March 11 (Bloomberg) -- The governor of China's central bank, which oversees the country's $1.07 trillion in foreign-exchange reserves, confirmed that a former vice finance minister will be named to manage part of the world's largest currency holdings.

Lou Jiwei is ``engaged in doing preparatory work on the agency,'' the People's Bank of China's Governor Zhou Xiaochuan said today at the annual meeting of the Chinese legislature in Beijing, without elaborating.

China plans to set up an agency to help manage its currency reserves, modeling it on Singapore's Temasek Holdings Pte to create what would become Asia's largest government-controlled investment fund.

Lou, promoted to China's cabinet on March 6, will manage at least $200 billion as head of the agency, said Yu Yongding, an adviser to the People's Bank of China, speaking in an interview last week.

China, the world's second-largest holder of U.S. Treasury bonds, now invests most of its currency reserves in dollar assets and is losing from exchange-rate movements as the yuan gains. The agency's creation may prompt a flood of Chinese investments in overseas technology companies, mines and oil fields to support an economy that grew 10.7 percent last year.

The agency will use ``international best practices,'' Chinese Finance Minister Jin Renqing said at a March 9 press conference in Beijing. ``We will try to maximize the profits and returns on our management of foreign exchange, guided by the principles of safety and risk management.''

Temasek Model

Singapore's state-owned Temasek managed S$129 billion ($84 billion) of assets as of March 31 last year. The company returned 24 percent in the year ended on that date, matching the MSCI AC Asia Pacific excluding Japan Index and outperforming Singapore's Straits Times Index. The yield on the benchmark 10-year U.S. Treasury bond is 4.52 percent.

At $200 billion, China's investment agency would dwarf Temasek and Gulf state investment firms such as Dubai International Capital LLC and the Qatar Investment Authority.

China's central bank holds about 70 percent of its currency reserves in dollars and had a 2006 loss of 26 billion yuan ($3.4 billion) from exchange-rate movements, Standard Chartered Bank Plc's senior economist Stephen Green estimates.

China's Reserves

China's foreign-exchange reserves jumped 26 percent, or more than $200 billion, last year to become the world's largest, driven partly by a record trade surplus. China's 2006 holdings of U.S. government bonds rose 12.5 percent to $349.6 billion.

Zhou didn't elaborate on the agency on or Lou's new role.

Lou, 56, previously worked as a vice-minister of finance for nine years. He ``is a very capable person who played a very active role spearheading reforms in China's financial-services industry,'' said the central bank's adviser Yu. ``His experience will help him manage the new agency very well.''

To contact the reporter on this story: Li Yanping in Beijing at at yli16@bloomberg.net

Last Updated: March 11, 2007 05:18 EDT