Reserves Management Regime Puts Central Bank, Forex Regulator Under Pressure

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The FINANCIAL — The regime China now uses to manage its $3.2 trillion of foreign-exchange reserves puts the central bank and currency regulator under political and economic pressure, a top executive at China's largest bank by assets said Monday.


According to London Stock Exchange, Yang Kaisheng, president of Industrial & Commercial Bank of China, on Monday said increasing the number of channels for the use of foreign exchange reserves will allow the reserves to be managed more efficiently.

"At the moment the reserves are only used by the People's Bank of China and the State Administration of Foreign Exchange, putting them under a lot of pressure, not just economic pressure but political pressure," he told reporters on the sidelines of the annual meeting of the Chinese People's Political Consultative Conference.

Asked what alternatives to managing the reserves would be appropriate, Yang said: "Allowing commercial banks to use the reserves would be one way."

Concern about the U.S. dollar's longer-term prospects have added urgency to the authorities' desire to diversify their currency holdings, and contributed to their push to give the yuan a more global role.

The government has encouraged companies and banks to expand overseas to ease the build-up of foreign-exchange reserves. To invest abroad, such institutions need to convert yuan holdings into dollars. That would help limit gains by the yuan, which the U.S. and other countries say China keeps low to boost exports.

In an exclusive interview with the Wall Street Journal in January, ICBC Chairman Jiang Jianqing said his bank may seek to help manage the reserves by borrowing from the currency regulator to finance projects overseas.

"If there are good opportunities, we will make applications to regulators to invest the reserves," Jiang said at that time.

The CPPCC, an advisory body that gathers a group of government officials and senior industrial executives, runs alongside the annual meeting of the National People's Congress, China's legislature.



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