China slashed its foreign currency reserves in US dollars to a record low. The percentage has fallen by roughly 10 percent since June 2010 in an attempt at risk management.
Looks like China, the biggest owner of the US debt, doesn’t want all its eggs in one basket. It may have been happening slowly but steadily. Since June 2010 the amount of foreign reserves China keeps in dollars fell from 65 percent to about 54.
Bearing in mind US government debt beat the country’s GDP in 2011. In the same year China and Japan agree to use national currencies in bilateral deals, shifting away from the US dollar. It’s what China does with Russia and Belarus.
This is China’s way of “displaying its displeasure” with the US says Patrick Young, Executive Director of the investment advisory firm DV Advisors.
Although China will hardly be able to find a bigger or more liquid market than the US for its foreign reserves in the near future, it is now trying to diversify as much as it can.
Patrick Young says “Canada and Australia” are the target countries. With Australia China has billions of dollars worth of iron ore deals. China and Canada are talking about a prospect of a formal free trade agreement. Another currency that is always going to be a “safe haven” is the Swiss Franc, Mr. Young adds.
The Financial Times reports the figures don’t suggest China started selling dollars, but rather accumulating them at a slower rate. After all even with 54 percent of its foreign reserves in US dollars China is the biggest single holder of US dollars. That’s twice as much as second on the list, Japan.