China Affirms Dollar’s Global Reserve Status – Richard McGregor

From FT:

Beijing on Sunday sought to repair fallout from reports it could use its $1,330bn foreign exchange holdings to put pressure on Washington and the dollar with a statement affirming the importance of the US dollar as a global reserve currency.

The official Xinhua news service quoted an anonymous official at the People’s Bank of China, the central bank, as saying that China was “a responsible investor in the international capital markets.”

[Image: “The root of all evil,” showing a dollar bill and 50 yuan, from Space Cadet, via flickr.]

“US dollar assets, including American government bonds, are an important component of China’s foreign exchange reserves, as the dollar enjoys a major position in the international monetary system, based on the large capacity and high liquidity of US financial markets,” the official was quoted as saying. “The close economic and trade relations between China and the United States play an important role in the stable development of the two countries’ economies and the world economy as well.”

The statement followed an article last week by the London-based Daily Telegraph, asserting Beijing had launched a “concerted campaign” of economic threats against Washington, with hints it could “liquidate” US dollar holdings.

The story was initially dismissed in China but prompted testy responses from US President George‚ÄâW. Bush and Hank Paulson, the US treasury secretary. [Full Text]

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