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Economic checkmate: how could China be responding to the US for sanctions?

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Manish Saini
Manish works as a Journalist and writer at Revyuh.com. He has studied Political Science and graduated from Delhi University. He is a Political engineer, fascinated by politics, and traditional businesses. He is also attached to many NGO's in the country and helping poor children to get the basic education. Email: Manish (at) revyuh (dot) com

China may be accelerating the diversification of its foreign exchange reserves from dollar assets in response to Washington, according to analysts consulted by the South China Morning Post.

According to some analysts, this could be happening in response to possible US financial sanctions, although they assure that there are clear limits on how far one can go in a possible push for de-dollarization.

Beijing reportedly reduced its holdings of US debt bonds for a quarter to $ 1.07 trillion at the end of August. This would be the lowest level since March 2017, according to published SCMP citing data from the Department of the US Treasury.

While China’s State Foreign Exchange Administration (SAFE), in its annual report, states that U.S. dollar assets accounted for 58% of reserves in 2015 or 1.8 trillion of China’s total reserves of about $3.14 trillion.

Thus, experts estimate that China could be increasing the diversification of its reserves from April to July, that is, about 3.6 times more than a year ago.

The chairman of the China Forex Investment Research think tank, Tan Yaling, assures that the changes recorded in China’s foreign reserves were part of “a diversification process” that was underway years ago by the foreign exchange regulator and considers that “a radical approach to dedolarization should not be taken because it would be of no use.”

In turn, He Qing from Renmin University of China considers a scenario that could cause negative effects on the exchange rate and investments.

“If China’s access to the US dollar is restricted, it would affect China’s foreign investment, foreign exchange reserve operations and lead to greater fluctuations in the yuan exchange rate in the short term,” he explained.

Other analysts believe that the dollar is losing prominence among international payments.

The dean of the Chongyang Institute of Financial Studies, Wang Wen, concluded that the monetary easing of the US Federal Reserve undermines confidence in the dollar as the main currency in the world.

Last September, Global Times analysts warned that Beijing could cut its holdings of US bonds to about $ 800 billion from a level of more than $ 1 trillion.

Frictions between the US and China have led the Asian giant to seek independence from the dollar through the internationalization of its national currency. The yuan has also strengthened through the accumulation of gold reserves and its use in trade with international partners.

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