The State Administration of Foreign Exchange (SAFE) has recently released its 2018 Annual Report. This was the first time for the report to disclose the results of foreign exchange reserve operations and data on currency composition. The report also made an introduction to the philosophy and risk management of investment with foreign exchange reserves, as well as the globalized operating platform. In this regard, the SAFE spokesperson and Chief Economist Wang Chunying answered media questions.

Q1: What are the main considerations for disclosing information on foreign exchange reserve operations?

A: As the largest holder of foreign exchange reserves in the world, China has long committed itself to enhancing the transparency of foreign exchange reserve information. In accordance with the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF), the People’s Bank of China (PBC) and the SAFE have begun to unveil the scale of foreign exchange reserves on a regular basis since July 2015. Meanwhile, the information on foreign exchange reserves are also published to the outside in many other forms, e.g. press conference, portal website of the SAFE and annual report of the SAFE. To further disclose the operation and management information of foreign exchange reserves caters to China’s demand for expanding openness on all fronts and is also conducive to boosting the international community’s confidence in the Chinese economy and finance.

Q2: What philosophy do you uphold while making investment with foreign exchange reserves?

A: China’s foreign exchange reserves act as an important participant and responsible long-time investor in the global financial market. We invest in the international financial market in line with the market-oriented principle, respect the rules of international market and industry practices, protect and promote the stability and development of international financial market.

China always pursues diversification and decentralization in investing with foreign exchange reserves. We flexibly adjust and constantly optimize the currency composition and asset structure in light of the market conditions, control overall investment risks and ensure that the our foreign exchange reserves can preserve and increase value leveraging the trade-off between different currencies and different asset classes.

Speaking of the currency composition, China’s foreign exchange reserves are seeing an increasingly diverse portfolio of currencies with the advancement of the national economy and trade, which is more decentralized than the average level of global foreign exchange reserves. This suits to the development demand of China’s outbound economy and trade and the international payment demand, and is consistent with the international trend of diversification in the currency composition of foreign exchange reserves. So, it helps to reduce the exchange rate risks of China’s foreign exchange reserves.

Q3: What’s the investment and operation goal of China’s foreign exchange reserves?

A: China always takes the security, liquidity, value preservation and growth as the objective for the operation of foreign exchange reserves. The core function is to maintain the equilibrium of balance of payments and stability of exchange rates and protect the country’s financial safety. All in all, the operation has brought about stable incomes over a long period of time, with the return staying at a good level among the world’s foreign exchange reserve administrations.

Q4: What’s the main reason for China to hold more gold reserves?

A: Gold reserve has been a key part of countries' diversified international reserves. With properties of financial assets and commodities, gold is conducive to adjusting and optimizing the overall risk and return characteristics of the portfolios of international reserves. From the long-term and strategic perspectives, we will dynamically adjust the portfolio allocation of international reserves when necessary, to ensure the security, liquidity, value preservation and appreciation of international reserves.

Q5: How does China perform risk management of foreign exchange reserves?

A: China always gives top priority to preventing risks arising from the operation of foreign exchange reserves. The country continues to perfect the risk management and internal control framework, to enhance the capabilities of identifying, assessing and managing risks, to diversify and improve the risk management tools and approaches, and to establish and improve the risk management system. Thanks to the country’s ceaseless efforts to step up prospective analysis and early warning of significant risk events, China’s foreign exchange reserves have weathered through a number of market shocks and challenges such as the international financial crisis and the European sovereign debt crisis flexibly and appropriately, thus not only succeeding in maintaining the overall security and liquidity of foreign exchange reserve assets but also making positive contribution to serving the country’s economic development, reform and opening-up, preventing and mitigating significant risks.