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     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 $3.1092 trillion by the end of October. 
--MNI Beijing Bureau; +86 (10) 8532 5998; email:
--MNI Beijing Bureau; +86 10 8532 5998; email:
[TOPICS: M$A$$$,M$Q$$$,MT$$$$,MGQ$$$]