China has made gradual diversification and restructuring an important policy initiative by holding a larger share of currencies and asset classes other than the dollar and US government debt due to the concerns about the depreciation of the US dollar, and higher interest rates in the medium term.
The government is supporting the increase in the diversity in the group of holders and managers of China's overall foreign exchange assets, leaving more in the hands of the corporations, the banks and individuals; promotion and encouragement of outward direct investment and increased portfolio outflows, as well as more external lending by corporations and banks, to reduce the accumulation of official reserves; Stabilizing the exchange rate; Increasing its purchase of gold and other commodities. The pace and degree of diversification is limited by the current global trade and financial system, where the dollar still dominates in transactions, asset holdings and official reserves. Before an alternative is developed to change the central role of the dollar as the dominant reserve currency, it is not expected that China will hold less than 50 percent of its official reserves in dollar assets - even in the medium term. When the US dollar reaches a peak depreciation level a new reserve currency will be established and or a new currency will be introduced into the global market.
Read more about this topic: Foreign Exchange Reserves Of The People's Republic Of China
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