THE Chinese government gave the euro its much-coveted seal
of approval yesterday, announcing that it would switch part of its vast
dollar reserves into the world's emerging "reserve currency".
Chinese finance minister Xiang Huaicheng said the flawless
launch of notes and coins had swept away the lingering doubts about monetary
union and opened the way for a recovery on the exchange markets.
"I will instruct the responsible authorities that they
should not just have a currency basket but rather that they should buy euros
as quickly as possible," he said after a meeting in Shanghai with the
German finance minister, Hans Eichel.
"It is an inevitable tendency that the euro will become
a reserve currency for a lot of states," he said, predicting that it
would regain parity with the dollar.
China has roughly $200 billion (£140 billion) in foreign
reserves, the second largest in the world. A small proportion is believed to
be in euros already in the form of deutschmark and French franc bonds, but a
major switch in asset allocation from dollars to euros could be large enough
to influence the currency markets.
The European Commission said yesterday that it was the
political gesture that really mattered. "What's important is the
political signal of confidence that this transmits, not the volume of
money," said monetary affairs spokesman Gerassimos Thomas.
China and the European Union share a joint suspicion of
American "hegemony" in the global economic system and have been
edging towards mutual embrace for several years. Beijing has a strong
interest in promoting a rival currency, but it has been waiting for clear
evidence that the euro is a viable long-term currency before committing
The Chinese backing for the currency came as a leading
consultancy said that the economic case for Britain entering the euro will
weaken in 2002 as UK interest rates rise and eurozone rates fall sharply.
The Centre for Economic Business Research also said that
Britons' increasing familiarity with the new currency could present an
"unusual opportunity for the UK to have its cake and eat it by staying
It estimates that, by the end of 2002, just over half the UK
population will have used euro notes and coins and that, as a result, the
present majority against joining will erode.
However, CEBR believes the Government is unlikely to call a
referendum within the next 18 months because it says 55pc to 65pc of voters
would still come out against entry.
Adapted from The Telegraph: 07/01/2002