China has ‘price to pay’ for cutting US dollar share of forex reserves, analysts say
- Analysts raise doubts whether Beijing has already gone too far in turning away from the US dollar
- China shed light on secretive foreign exchange reserves by releasing investment returns and US dollar share in decade to 2014
China’s sharp reduction in US dollar asset holdings has increased the risk of its investment portfolio, analysts have said in response to a disclosure of historical data by the agency charged with managing its foreign exchange reserves.
The State Administration of Foreign Exchange (Safe) on Sunday disclosed that it had cut the portion of US dollar-denominated assets in its reserves portfolio to 58 per cent in 2014, below the international average of 65 per cent and down sharply from the 79 per cent of China’s holdings in 2005.
Aidan Yao, senior emerging Asia economist at AXA Investment Managers, argued that US assets, particularly US Treasury securities, are “the most liquid and safe assets in the world”, and so cutting their share in the portfolio was, by definition, a risky move.
“China does have to pay a price – compromising liquidity and safety of their portfolio – for diversifying away from the US dollar,” Yao said.