China should purchase gold and oil overseas with its foreign-exchange reserves to avoid losses from a weakening dollar, according to a newspaper commentary by Shao Fenggao, an official at China Construction Bank Corp.
The Dollar Index has slumped as the Federal Reserve may announce a second-round of quantitative easing this week, according to the commentary published in the China Business News today. No information was given on Shao’s role within the world’s second-largest lender by market value.
China’s foreign-exchange reserves, the world’s largest, surged by a record to $2.65 trillion at the end of September, according to an Oct. 13 statement from the People’s Bank of China. Meng Qingfa, a researcher at the China Chamber of International Commerce, wrote last week in the International Business Daily that China should increase its gold holdings.
The large amount of foreign-exchange reserves meant that China needed to make contingency plans for an inevitable further depreciation of the dollar, Shao wrote in the commentary, which ran on the newspaper’s opinion pages. China should buy more strategic resources such as gold and oil overseas instead of acquiring only financial assets, he wrote.
Spot gold has surged 24 percent this year and traded at a record $1,387.35 an ounce on Oct. 14, according to Bloomberg data. Oil futures in New York have gained 3.1 percent this year, and traded at $81.82 a barrel at 12:07 p.m. in Shanghai. The Dollar Index, which gauges the U.S. currency’s value against a basket of six counterparts, fell for a third day.
Asset Bubbles
China should also place stricter controls on inflows of so- called hot money, which can create asset bubbles that hurt the local economy, Shao wrote in the commentary. The nation’s hot- money inflows totaled about $53 billion in September, Shao wrote, without saying how the figure was calculated.
Federal Reserve policy makers meet tomorrow and Nov. 3 to assess the state of the U.S. economy and decide on policy, according to the data on the Bloomberg. Estimates of the size of the next round of asset purchases range from $1 trillion at Bank of America-Merrill Lynch to $2 trillion at Goldman Sachs Group Inc, according to notes from the banks. Economists at both firms agree the Fed may start with a $500 billion plan.
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