Bloomberg News

China Managing Euro Similar to Dollar Peg, BofA’s Woo Says

October 27, 2011

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Oct. 28 (Bloomberg) -- Chinese officials are seeking to avoid a decline in the euro in a manner similar to how they manage the relationship between the yuan and the U.S. dollar, according to Bank of America Corp.’s David Woo.

“Ultimately, China is managing two currency pegs, not just one,” said Woo, global head of rates and currencies at Bank of America, at FX11, a foreign-exchange conference hosted by Bloomberg LP in New York yesterday. “Reserve managers remain the single most important driver of the euro through reserve diversification.”

The People Bank’s of China sets a daily reference rate for the dollar after scrapping a two-year peg June 19 after holding the currency stable during the financial crisis to aid exporters. The yuan is permitted to fluctuate 0.5 percent on either side of the daily fixing. The yuan was valued at 6.3477 per dollar and 8.8239 per euro yesterday.

“Of the three time zones, the euro consistently appreciates in Asia,” Woo said.

China, the world’s largest reserve holder, doesn’t give breakdowns of its holdings. China’s State Administration of Foreign Exchange, which manages the country’s $3.2 trillion of foreign currencies, said July 20 that it will continue to diversify.

Sarkozy, Jintao

French President Nicolas Sarkozy spoke yesterday with Chinese President Hu Jintao to seek support from the country with the world’s largest currency reserves to help contains the euro-zone debt crisis. Hu hopes the measures will help to stabilize markets, state-owned China Central Television reported.

China wants a “buffer to its existing portfolio,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG, said at the conference. They have a “vested interest in stability in Europe.”

Sarkozy’s outreach precedes a Group of 20 summit he will host next week, with Europeans seeking to further progress in overcoming the woes of the euro-region, China’s largest export market. The conversation also came a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the European Financial Stability Facility, to court investors.

-- With assistance from Jonathan Stearns in Brussels and Helene Fouquet in Paris. Editor: Dave Liedtka, Paul Cox

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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