China should boost euro, yen in reserves: report

SHANGHAI (AFP) - China should keep the dollar as the primary currency in its foreign exchange reserves but raise the share of euros and yen, a newspaper linked to the country's central bank said Monday.

China should also control the size of its massive foreign exchange reserves, which surged to a record 2.27 trillion dollars at the end of September, according to the opinion piece published in the Financial News.

China "should have dollars as its primary holding, but it needs to cut the proportion of dollars and increase the portion of euros and Japanese yen," the newspaper said.

"Foreign exchange reserves are a double-edged sword. More may not be better," the commentary said, adding excessive reserves would increase inflationary pressure and lead to calls for the appreciation of the yuan.

An editor with the Financial News said the author of the article, Zhou Hai, did not want details about his position at the People's Bank of China to be disclosed.

China's forex reserves, the world's largest, have ballooned in recent years, fuelled by strong foreign investment, large trade surpluses and inflows of "hot money" -- short-term speculative funds in search of quick profits.

China has invested a large part of the reserves in US dollar assets, such as safe but low-yielding US Treasury bonds, but Beijing has tried to diversify its investments to improve its returns in the midst of the financial crisis.