Source: China Daily

03-24-2009 08:07

The nation will continue buying US government debt but pay close attention to possible fluctuations in the value of the assets, a vice-governor of the central bank said yesterday.

Investing in US Treasury bills is "an important component of China's foreign currency reserve investments," People's Bank of China Vice-Governor Hu Xiaolian told a news conference about President Hu Jintao's participation in the G20 financial summit in Britain next week.

"We are naturally concerned about the safety and profitability of US government bonds," she added.

The nation's reserves hit a record $1.95 trillion at the end of 2008, the largest in the world and far exceeding those of Japan, the second-largest foreign exchange holder, which had $1.03 trillion.

Beijing is also Washington's biggest foreign creditor, holding an estimated $1 trillion in government debt.

Hu Xiaolian made the remarks in response to worries that rising debt to fund Washington's stimulus package could stoke inflation and weaken the dollar, which would erode the value of the assets.

US central bankers decided last week to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home loan and other interest rates. With the purchases of Treasuries and housing debt, Fed chief Ben Bernanke is effectively using the Fed's powers to print money. Some analysts said that by doing so, he has signed the death warrant for the US dollar.

But Hu Xiaolian said that the credit risk in continuing to buy US Treasuries is low in overall terms.