WERDER-HAVEL, Germany - The managing director of the International Monetary
Fund said Saturday that he was not concerned about a reported move by China to
entrust some of its foreign exchange reserves to a US private equity firm.
The Financial Times reported Saturday that a new company being set
up by China to manage a portion of its reserves has entrusted US$3
billion to the Blackstone Group.
at a press conference on the sidelines of a meeting of finance ministers from
the Group of Eight leading industrialized nations, Rodrigo De Rato said he was
not concerned about the impact China's move could have on the US dollar and
US Treasury bonds.
"It's rational that emerging economies who have very high levels of reserves
diversify their investments," Rato said. "It has happened in other cases, and I
don't think we should consider that as extraordinary."
He added that it was particularly in the interest of countries with large
foreign-exchange reserves that stability is maintained in currency markets.
The Chinese government said in March that it would create a
multibillion-dollar company to invest a portion of its US$1.2 trillion (euro890
billion) in reserves, largely invested in US treasuries, to make more
profitable use of the money.
While authorities have not yet revealed details about the new company's size,
economists say Beijing might allocate as much as US$200 billion (euro148.4
billion) to US$400 billion (euro296.8 billion) to the venture.
Rato also said that greater currency flexibility was in China's own
"Yesterday's measures are a step in the right direction" because they
introduce more flexibility into the exchange rate system, and greater reliance
on tightening of monetary policy - key to China's macroeconomic stability,
"It would be hard for the Chinese authorities to apply the type of monetary
policy they need without a more flexible exchange rate system. If that's not the
case, they're at risk of overheating in the Chinese economy, especially in the
flow of investment," he added.
China said Friday it would widen the trading band of the yuan against the
dollar to half a percent above and below its central parity rate, effective
It also announced it would raise benchmark deposit and lending rates from
Saturday as part of an effort to control rapid credit and investment growth
while keeping consumer prices stable and lift banks' reserve requirement ratio
by 50 basis points starting June 5.