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Central banks look to China’s renminbi to diversify forex reserves – The Financial Times
Kerstin Weber

Central banks are looking to the renminbi to diversify their foreign currency holdings, in a sign that a geopolitical flare-up could take away the dollar’s dominance. 

The proportion of central bank reserve managers who have invested in, or are interested in, renminbi rose to 85 percent this year from 81 percent last year, according to an annual survey conducted by UBS among 30 major central banks. done accordingly. April and June 2022. 

“We are seeing a gradual decline in the dollar,” said Massimiliano Castelli, head of strategy for global sovereign markets at UBS. “The picture that emerges is one of a multipolar currency system.”

The growing interest in China’s currency comes as Western powers froze nearly $300bn of Russia’s foreign exchange reserves in response to Moscow’s invasion of Ukraine in early 2022. While the move is seen by most of the managers surveyed as a one-time event, it pits complicating relations with those Western powers and countries not involved in sanctions against Russia, including China. . 

This intensifies the divide between China and the US that had already begun during the Trump administration’s trade war. Four-fifths of central bankers surveyed said they believe the move towards a multipolar world – away from a US-centric system – would benefit the renminbi. Less than half said it would benefit the US dollar. 

Concerns about high US inflation and the Federal Reserve’s efforts to fight it have also affected short-term sentiment towards the dollar. Central banks typically hold dollars through US government debt, which has sold out sharply this year as the Fed tightened monetary policy.

The survey showed that reserve managers are looking to alternative assets such as equities, green debt and inflation-protected bonds in light of concerns over the US Treasury. Nearly half of the respondents said their portfolios are more diversified now than they were last year. 

While the dollar is far and away the world’s top reserve currency, its gains have declined in recent years. According to IMF data, it was just under 60 per cent of the allocated reserves at the end of the first quarter of 2022, down from 65 per cent in the same period in 2016. However, China’s renminbi still accounts for only a small portion, less than 3 percent. 


So far this year, most central bank reserve managers have increased their dollar holdings. Of the managers surveyed, 62 percent added to their dollar reserves in the past year, while 54 percent added to their renminbi holdings. 

“Eventually down the road we will see central banks and reserve managers wondering what else they might have in their ammunition toolkit to fight volatility and macroeconomic events,” Castelli said.





Kerstin Weber writes for Financial News Today


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