Dollar Decline Won't Cause `Real' Reserve Loss for China, Regulator Says
China’s foreign-currency regulator said a decline in the value of the U.S. dollar won’t cause “real” losses from foreign-exchange reserve investments.
Paper losses on reserve investments from yuan appreciation have been smaller than book-value gains on financial assets translated into foreign currency, the State Administration of Foreign Exchange said on its website today.
The yuan has gained 22 percent against the dollar since a peg against the greenback was scrapped in July 2005, raising the potential for losses should China convert its $2.45 trillion in reserves into local currency. The government used the reserves to recapitalize the nation’s four largest state-owned banks, including Bank of China Ltd. and China Construction Bank Corp.
“Unless there’s a war or a crisis, the central bank won’t convert foreign-exchange reserves massively back into yuan so there won’t be any actual loss on reserves as a result of dollar depreciation against the yuan,” SAFE said in the statement.
The purchasing power of reserve assets has increased steadily as returns have outpaced U.S. inflation for many years, the regulator said. China held $900.2 billion in U.S. Treasury bonds as of April, up from $895.2 billion in March.
SAFE also said it has not invested reserves in stocks of Fannie Mae and Freddie Mac, the two U.S. state-backed mortgage lending agencies, and the two agencies’ bonds are paying back principle and interest “normally.”
The regulator said Europe will weather the sovereign debt crisis and safeguard stability of financial markets, according to the statement.
“As a responsible long-term investor, China sticks to the principle of diversifying investments,” said SAFE. “Europe was, is and will be one of the major markets for foreign-currency reserve investment.”
--Zhang Dingmin, Judy Chen. Editors: Sandy Hendry
To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or xchen45@bloomberg.net; Dingmin Zhang in Beijing at +86-10-6649-7576 or dzhang14@bloomberg.net.
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