I cannot provide the answer to the question you ask, but I think it is an extremely interesting question, which merits further discussion and even investigation. There are at least two aspects to it that I can think of:

(1) What is the best intervention strategy if you track a basket (assuming that China really does of course). Given that China is a big economy relative to Korea, for example, its intervention might be more effective if it buys won, for example. It depends on the price elasticity of the currency and its weight in the basket. Perhaps this intervention is routed through the dollar, but if the dollars are quickly sold for won, then the intermediate step is irrelevant.

(2) What else are China’s reserves for? If its reserves are only for intervention against the basket, then I guess it should hold them in the basket currency composition. If not, then it may be able to overlay some currency composition driven by investment considerations. But perhaps they can do this using derivatives anyway.

I would be interested if you know of anything practical published on intervention strategy. Such issues seem to fall into a crack between academics, who tend to publish useless formalisations of problems as posed by themselves, and practitioners, who are familiar with the real problem, but are not encouraged to write about such sensitive issues.

my question is:

a) is this determined by a portfolio target (which implies holding more $ when the $ is falling to offset the rising $ value of euros and pounds)
b) something that the PBoC adjusts as they seek to find the best time to buy, and that means reducing $ sales when $ is under pressure.
c) something driven by a very specific rule geared around the incoming flow, not a portfolio target — everytime we buy $10, we sell $3 for euros and pounds and yen and won.

a and b provide a bit of extra support for the $ when it is under pressure …

I wonder if, had they known what reserve growth would like like over the last few years, PBOC would have substantially lowered their USD benchmark weight in their reserve basket in 2002 or so.

the other point of tension that one of the PIC’s mandates seems to be to invest in emerging economies — which potentially works against the PBoC’s need to add to its $ reserves disproportionately to limit pressure on the RMB/$ v other currencies (i.e. prop the $ and thus the RMB up).

If anyone thinks the PBoC has been a big seller recently, do tell — that would force me to revise a lot of my thinking/ calculations about $ reserve growth.