China needs policy changes to trim reserves: paper

In an editorial, the China Daily said that it was wise for China to consider allowing local businesses and individuals to buy more foreign currency as a way of reducing the burden of the country's reserves, which are the largest in the world.

Last week, deputy central bank governor Wu Xiaoling told the official Xinhua news agency that the central bank had proposed easing regulations to boost the amount of foreign exchange that individuals can hold.

The proposal involved the idea of shifting China's foreign exchange reserves, which rose to almost $854 billion at the end of February, from state coffers to the people, according to state media.

But the China Daily said that without substantial improvement in domestic consumption and investment policies, it was unlikely that individuals would be persuaded to purchase more foreign currency from banks, especially as the yuan appreciated.

"If the central bank is serious about having more forex reserves held by the people, it has to do more with domestic consumption and (the) investment environment," the official English-language paper said.

Allowing Chinese businesses to hold more foreign currency was desirable as it would allow them to raise their risk awareness and facilitate efforts to strike out on to the world stage.

But allowing individuals to buy more foreign exchange from banks to fund travel or study overseas would not do much to ease the pressures of the country's ballooning international balance of payments, it said.