MNI: PBOC Counselor Says Role of FX Reserves Is Stability

     BEIJING (MNI) - The main functions of China's foreign-exchange reserves are

to stabilize the currency's exchange rate and provide liquidity for the economy,

a senior official at the People's Bank of China said.

     "The primary goal of managing forex reserve is not to think about

profitability, but security and liquidity," PBOC Counselor Sheng Songcheng said

at a closed-door speech in Beijing on Tuesday. 

     Some economists have criticized the central bank's dual role in managing

forex reserves and monetary policy, saying it has resulted in excess liquidity

and inflated prices of assets and consumer goods, leading to low returns on

locked-up wealth.

     Critics of the central bank have also argued for a two-system structure:

having the PBOC and Ministry of Finance manage money together to prevent

inflation and financial disorder.

     "This viewpoint is a huge misunderstanding" of China's basic currency

structure and monetary policies, Sheng said.

     The central bank made the decision to mostly invest in U.S. government

bonds in order to safeguard the country's assets and strategic hold over

management of its economy, Sheng said.

     China's forex reserves have risen for nine straight months after a period

of decline, reaching $3.1092 trillion by the end of October. 

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MGQ$$$]