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SAFE Reiterates No Direct Forex Loss on Yuan's Rise
Jul 21,2011 10:13CST
data analysis
Source:SMM
China's foreign exchange regulator reiterated Wednesday that an appreciation of China's currency renminbi, or yuan, will not directly result in a loss of the country's foreign exchange reserves.

BEIJING, Jul. 21 -- China's foreign exchange regulator reiterated Wednesday that an appreciation of China's currency renminbi, or yuan, will not directly result in a loss of the country's foreign exchange reserves.

Value changes in foreign exchange reserve assets only happen when they are converted to yuan, the State Administration of Foreign Exchange (SAFE) said in a statement on its website.

"Currently China does not need to repatriate forex reserves massively," it said.

Currency fluctuations only reflect a change to the book value, it said, adding it is not an actual loss and does not affect real purchasing power of the forex reserves.

Government data shows China's forex reserves totaled nearly $3.2 trillion by the end of June.

The statement echoed the stance the SAFE voiced in May, which was made after a government researcher said in an essay that China likely suffered an accumulated loss of around $271 billion on foreign exchange reserves since 2003 because of the yuan's appreciation.

However, excessive growth and size of foreign exchange reserves pose challenges to the management, SAFE said, adding it will accelerate reform of the formation mechanism of the yuan exchange to promote an international balance of payment.

SAFE also called for the United States government to take "concrete and responsible measures" to strengthen confidence in the international financial market and respect and secure investors' interests.

The call was made after credit rating agencies such as Standard & Poor warned the US government about its growing sovereign debt.

China is by far the largest holder of US debt, with holdings at $1.153 trillion by the end of April.

SAFE added that using China's forex reserves to make large-scale investments in global commodities, such as gold and oil, would hurt domestic consumption and economic development as the move would increase the price of commodities.
 

loss of the country's foreign exchange reserves;SAFE

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