Wu Xiaoling triggers US dollar plummet
November 30, 2006 | BY
clpstaffA comment by Wu Xiaoling, a People's Bank of China (PBOC) deputy governor, triggered the lowest US dollar fall in 19 months compared to the euro. Wu's…
A comment by Wu Xiaoling, a People's Bank of China (PBOC) deputy governor, triggered the lowest US dollar fall in 19 months compared to the euro. Wu's remark that holding US-dollar reserves can be risky is partly credited with the plummet, reports the Financial Times.
Observers say that Beijing's strategy to use the US dollar to prevent fluctuations in the renminbi will enable the renminbi to build high reserves. Because the PBOC buys US dollars with renminbi, it effectively creates a trade surplus that produces foreign reserves.
PBOC is known for its practice of sterilization, through which it issues central bank bills to financial institutions in China. This strategy yields high profits for PBOC, due to the gap between China's low rates and US Treasuries returns.
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