China cannot scrap USD in its financial system

China cannot scrap USD in its financial system

China has set a goal of reducing its reliance on the US dollar. So, its forex reserves have been greatly diversified in the recent few years. Interestingly, the People’s Bank of China acknowledges the strong influence of the US dollar in the status of the world’s reserve currency on its own and the global financial systems. China’s monetary authorities embarked on a hard course being aware of serious headwinds. Nowadays, the US dollar still represents the lion’s share which is 59% of China’s forex reserves. In parallel, the central bank has been scaling up its holdings of other currencies and gold. According to official estimates, the gold reserves have been expanded to the record high of 1,959.5 tons. The People’s Bank of China does not report on a breakdown of its forex portfolio, but experts assume that the regulator invests mostly in the pound sterling, the euro, and surprisingly the yen as alternatives to the US dollar. Indeed, the yen is welcomed as a safe haven asset despite political jitters between China and Japan. Another thing is the financial vulnerability of China’s corporate sector due to its swelling debt worth nearly $500 million. China’s companies may find it difficult to repay their loans because the US dollar strengthened notably against the yuan in the course of the trade war.                      

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