China mulls boosting euro reserves

Euros are available, but in the retail market the greenback is still king

Just as the initial euphoria from the introduction of notes and coins wears off, the euro has received a boost from news that China could be buying more euros to reduce its reliance on the dollar.

"China has always thought the euro important," said the Chinese finance minister, Xiang Huaicheng, "and thinks that it will some day be on an equal footing with the US dollar."

Mr Xiang's comments came after a meeting with his German counterpart, Hans Eichel, on 6 January.

Hope deferred

Unsurprisingly, Mr Eichel - who is on a four-day tour taking in China, Iran and Hong Kong to talk up the euro - welcomed the comments.

The euro still had a great deal of headroom not least because - he said - the continent's economic fundamentals were sound.

"The potential for appreciation has still not been fully used," he said.

China has the second largest foreign exchange reserves in the world, and buying more euros would rank as a significant sign of support for Europe's currency.

Western businesses are already making inroads

When the euro was launched in electronic form in 1999, Brussels was full of fond hopes that it would rival the greenback as a global reserve currency.

The rapid decline in its value from around $1.18 to below 90 cents put paid to that.

In the intervening time, the article of faith has been that given time - and especially the aftereffects of the advent of "real" euro money this year - things would stabilise.

Spreading the risk

Mr Xiang seemed to agree.

"I've noticed that the euro has firmed in the past days, so I will suggest to relevant authorities that we should not put all our eggs in one basket, and consider buying more euros as soon as possible," he said.

China revealed in November that it had been increasing the proportion of euros it held as part of its $200bn reserves, triggering a brief spike in the foreign exchange markets.

Still, everyday Chinese are less immediately keen.

Money changers are generally finding relatively few takers for the new notes, meaning wafer-thin margins and little motivation to hold the currency.