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CHINA / National

Central Banker: Rely less on dollar
(Reuters)
Updated: 2006-06-28 10:00

Countries around the world should gradually rely less on the dollar for trade and their foreign exchange reserves, a Chinese central bank official said in comments.

Following his the comments, the dollar briefly fell the yen, but soon recouped all the earlier losses.

Countries around the world should gradually rely less on the dollar for trade and their foreign exchange reserves, a Chinese central bank official said in comments. Analysts say China has been gradually diversifying away from dollar assets in its foreign exchange reserves, the world's largest, but fears of a collapse in the U.S. currency will prevent it from making any dramatic shift.

"Internationally speaking, the situation of over-reliance on a certain country's currency for international trade, settlements and reserve assets should be gradually changed," Wu Xiaoling, deputy governor of the People's Bank of China, said in remarks reported by the Financial News on Tuesday.

Wu did not specifically refer to the dollar by name, but it is the world's main reserve currency and the one in which the bulk of trade is conducted.

Analysts said the comments were too general to signify any concrete change in policy.

"The central bank is not going to give you a hint in terms of direction of investment before they really do anything, so I don't read too much into this sort of general remarks," said Qu Hongbin, economist with HSBC in Hong Kong.

Still, dealers took the comments as a reason to sell the dollar, whose long-term strength relies partly on central banks' willingness to stock it as their main reserve currency.

It fell by 03:08 GMT to 115.95 yen from 116.12 prior to the comments. But by 12:16 GMT, the dollar had rallied to 116.49 yen.

Last year, central bank chief Zhou Xiaochuan was cited in state media as urging domestic companies to use non-dollar currencies, such as euro and Japanese yen, in foreign trade and investment, to reflect more diverse trading and investment patterns.

Some government economists have said China should convert some of its foreign exchange reserves, which hit $875.1 billion at the end of March, into gold to hedge against weakness in the dollar.
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