'New funds considered' to protect reserves
The central bank is planning new investment funds to diversify holdings in the nation's $3 trillion foreign exchange reserves, to hedge against depreciation and inflation risks, according to a news report.
The proposed funds will invest some of the foreign reserves in energy and precious metal markets, the New Century Weekly said on Monday, citing unnamed sources close to the People's Bank of China.
However, the report did not disclose the size of the proposed funds, their operation methods or the timing of their possible launch. The central bank was not available for comment.
Foreign exchange reserves jumped by $197 billion to $3.04 trillion in the first quarter, marking the second-biggest increase on record, central bank statistics show.
That fueled concern over devaluation risks and over-exposure to US debt.
"This is a positive way to diversify investment risk, especially as China holds such large amounts of US debt," Xu Hongcai, a finance professor at the China Center for International Economic Exchanges, told China Daily.
While China has been slashing its US debt holdings since October, it still remains the largest creditor. At the end of February, China held $1.15 trillion of US debt, down $600 million from the previous month.
US debt, once considered gilt-edged, is becoming increasingly risky.
Credit agency Standard and Poor's downgraded America's credit outlook in April from stable to negative for the first time in history, implying that the US has been put on notice that it faces losing its AAA credit rating unless it gets on top of its yawning debt and deficit.
Earlier this month, Zhou Xiaochuan, the central bank governor, said China's foreign exchange reserves had exceeded a "reasonable" level and the management and diversification of the holdings should be improved.
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