November 15, 2007 (LPAC)--In response to a question from Executive Intelligence Review at a November 14 Washington forum, regarding, if and how the drastic fall of the dollar was influencing the decisions of the People's Bank of China (PBOC), PBOC assistant governor Yi Gang reasserted the Bank's confidence in the dollar.

Yi Gang was speaking at a conference on ``Monetary Arrangements in the 21st Century'' sponsored by the Friedmanite Cato Institute, at which Fed Chairman Ben Bernanke had spoken earlier in the day. Yi Gang said the dollar had to continue as key component of the country's $1.4 trillion reserves, because it was "the largest currency that we use" in terms of trade and foreign direct investment as well as financial clearances and settlements. "It is also a very firm policy for China that the U.S. dollar will be the major currency in our reserves and that policy is very firm."

Yi Gang also referred, without naming him, to the much-publicized comments of National People's Congress Standing Committee Chairman, Cheng Siwei, to the contrary by saying, ``There is some discussion or comment from, maybe, scholars, maybe other persons in China in terms of `There is huge amount of adjustment of reserves.' I think that probably is opinion.... if they want to express their opinion, that will be fine, we consider it, we listen (to) it, but that does not change our policy.''

Yi did, however, say that the Bank would continue to diversify to other currencies' holdings. "The point is, the principle for our diversification and the principle that guides us for these reserves, is that it should be proportional to our real economic transactions--meaning trade, FDI (foreign direct investment) and clearance and settlement."

Since the dollar issue, which had not previously been touched upon in Yi Gang's own comments, was really the elephant in the room at this conference which devoted much time to the issue of the renminbi, it was picked up widely by the Chinese and international press.