Reply #13: China should balance euro, dlr in reserves-lawmaker

[Ghost Dog]

http://www.reuters.com/article/marketsNews/idUKSP27603720071107?rpc=44

BEIJING, Nov 7 (Reuters) - China delivered a one-two punch to the dollar as a top lawmaker suggested a bigger role for the euro in its $1.43 trillion hoard of foreign reserves and a central banker said the dollar is losing its global currency status.

The euro hit a record high above $1.47 following remarks on Wednesday by Cheng Siwei, vice-chairman of the standing committee of the National People's Congress, China's parliament, pointing to diversification of the country's reserves.

"In terms of the structure of our foreign exchange reserves, we should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies," Cheng told a financial forum.

"For example, in the current foreign reserves structure, I mean the bonds we bought, the euro is appreciating against the yuan while the U.S. dollar is depreciating against the yuan. So we should make a balance between the two," Cheng said.

Cheng's position gives him influence in Beijing, where he holds a rank equivalent to vice premier. However, he does not have real authority over financial matters and has been known to speak on a range of subjects, from the stock market to foreign acquisitions, on which he does not control policy.

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Cheng said that China would not bow to foreign pressure to let the yuan rise much faster.

He cited the example of the 1985 Plaza Accord, which engineered a sharp rise in the yen. Cheng said this ushered in a decade of deflation in Japan, showing that the search for international currency compromises may bring unwanted results.

"Therefore, the exchange rate issue is a sovereign issue, and we must consider it mainly from our own point of view," he said.

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