China is found to have a massive connection with the US dollar but as the chances of decoupling are found to be higher, Beijing is slowly changing its reserves to lower its dependence on the world’s largest reserve currency. The increasing trade tensions amid the US and China are found to aggravate the risk of financial decoupling between the 2 economies. The White House has taken a few drastic steps like delisting Chinese stocks in the US to stop US investments in China. Thus, China’s capital has thought of transforming its foreign exchange reserves into different currencies. The state also plans to commence shadow reserves. China will have its highest shares of FX exchange reserves diversified into other currencies to reduce dependence on the USD and instead quickly move forward.
In June, China had 59% of its foreign exchange reserves put on the dollar. The country has not yet disclosed its exact allocation of foreign exchange reserves in different currencies but there are possibilities that the British pound, euro, and Japanese yen may be included. The holdings of the US Treasurys will be eventually let go by Beijing. China was found to have lowered its holdings by $88 Billion in the last 14 months. In June, China was found to be in debt of $1.11 Trillion as per the US Treasury Department data. The gold reserves holding were found to hit 1,957.5 Tons in October. The country is found to be immersed in about $500 Billion in foreign corporate arrears. The greenback is in US dollars has forced many Chinese firms to sell their assets. Looking at China’s trade, the new plan seems to be profitable. There are other Asian regions that will be affected by the movements in the US dollar. The shadow reserves, which means alternative investments, is the new plan the Chinese governments have opted for. China’s State Administration of Foreign Exchange (SAFE) is found to manage its foreign reserves like Huaxin in Singapore, Hua’an in Hong Kong, Huaou in London, and Huamei in New York.
Similarly, the People’s Bank of China (PBOC) has stated that they have not authorized the digital currency of yuan or any asset trading dais to perform transactions. The China banks are probing the potential for a digital yuan. The transition to crypto is being researched and tested. It is expected that by January 25, 2020, the PBOC might unveil an electronic payments system.
