China Should Raise Euro, Yen Holdings, News Reports

Oct. 26 (Bloomberg) -- China should increase the representation of the yen and the euro in its foreign-exchange reserves, the Financial News, a newspaper affiliated with China’s central bank, reported today.

The U.S. dollar should retain the largest weighting in the reserves, albeit a smaller proportion than at present, according to an article by Zhou Hai carried by the Beijing-based paper. The holdings of euro and yen should be increased to reflect China’s growing trade with the European Union and Japan, the report said, without providing Zhou Hai’s job description.

The government is working to maintain an “appropriate” size of currency reserves to reduce pressure on inflation and the yuan’s appreciation, the author wrote in the article. China should improve the yuan’s exchange-rate mechanism and use monetary policy tools “reasonably” to lessen the need for “passive” purchases of foreign currencies, Zhou wrote.

China doesn’t need to include the Hong Kong dollar in its reserves owing to the latter’s peg to the U.S. currency, according to the report.

To contact Bloomberg News staff for this story: Belinda Cao in Beijing at +86-10-6535-2316 or lcao4@bloomberg.net