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China gains appetite for euro in reserves

By Bill Savadove
China confirmed on Tuesday it has bought euros in the past two months and would raise further the proportion of the European currency in its $200 billion foreign exchange reserves, the world's second largest.

Confirmation that China was buying euros, rumoured in the market for days, could provide a valuable boost to the currency before the European Central Bank (ECB) introduces coins and notes on January 1 next year.

"The share of euros is increasing," said Guo Shuqing, vice governor of the central People's Bank of China and director of the State Administration of Foreign Exchange.



"During the past two months, we have bought a lot of euros and in the coming month we will continue to buy more euros," he told European business executives.

He declined to give volumes or the current proportion of euros in China's reserves, which are second only to Japan.

Rumours in the foreign exchange market say China aims to raise the share of euro in its reserves by 10 percent, or roughly 20 billion euros. Chinese officials have declined to comment.

China holds the bulk of its reserves in the U.S. currency but it welcomed the euro as an alternative to the almighty dollar after its creation in 1999.

The European Union was also China's third biggest trading partner last year behind the United States and Japan with volume of $69 billion, making the euro a key trade currency.

The euro firmed against the U.S. dollar in Asian trading on Guo's remarks. It hit a session high of $0.8809.

EURO CONFIDENCE

European Central Bank vice-president Christian Noyer told the business executives that the bank was confident of a strong euro, supported by an economic rebound in Europe by the end of 2002.

"I'm very confident that over time, the euro will show its strength vis-a-vis the other currencies of the world," he said.

Europe was likely to have flat economic growth for two to three quarters, but the situation would turn for the better next year, Noyer told reporters.

"We expect to come back towards solid growth at the end of next year," he said.

The ECB cut interest rates earlier this month but Europe's economy has also struggled since the September 11 attacks on the United States which accelerated the global slowdown.

Guo also said China's own yuan currency, which is tightly controlled, would be kept stable after entry to the World Trade Organisation on December 11.

"The exchange rate will be kept steady," he said.

Chinese central bank officials have said the government would make the exchange rate more flexible after WTO entry, but have given no time frame.

($1-.8779 Euro)


source: reuteis: Nov. 20, 2001