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. Last Updated: 07/27/2016

China Gives Backing to U.S. Dollar

BEIJING -- China on Sunday delivered a vote of confidence in the dollar, saying dollar assets form an important part of its foreign exchange reserves and the U.S. currency plays a prominent role in the global monetary system.

The comments, made to the Xinhua news agency by an unidentified Central Bank official, follow a report last week by Britain's Daily Telegraph suggesting that Beijing could dump its vast dollar holdings if a trade war broke out with Washington.

"U.S. dollar assets, including American government bonds, are an important component of China's foreign exchange reserves as the dollar enjoys a major position in the international monetary system based on the large capacity and high liquidity of U.S. financial markets," the official said, Xinhua reported.

The Daily Telegraph story caused a stir in global markets. U.S. President George W. Bush said China would be foolhardy to dump dollars, while the top Republican on the U.S. Senate Finance Committee wrote to the Chinese ambassador seeking clarification.

Asked about newspaper report, the U.S. Central Bank official said: "China is a responsible investor in the international capital markets."

His comments follow concerted liquidity injections on Thursday and Friday by global central banks to soothe investors' fears that spreading losses stemming from investments in subprime U.S. mortgages could snowball into a global credit crunch.