The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

China’s reserve shift may leave dollar vulnerable

Concern that China is poised to diversify its currency reserve holdings has meant some downward pressure.

Last month, to the joy of many in the foreign exchange market, the dollar finally broke out of the narrow range it has been trading in all summer against the euro. The shift came after Zhou Xiaochuan, the People’s Bank of China governor, was reported as saying that although China had had “a very clear diversification plan for several years”, the central bank was now considering “lots of instruments” for investment purposes.

Many believe that with China’s foreign currency reserves now thought to be exceeding $1 trillion and growing at about $20 billion a month, the country is now poised to start actively diversifying. However, so far there has been no sign of such changes and Zhou has replied in the negative when asked if the central bank has been selling dollars.

But a growing view is that China is now looking for investments that provide higher yields than US treasuries. This could conceivably be other US-denominated debt, such as corporate and mortgage-backed bonds, which would lessen any potential sell-off in the dollar.

Charles Dumas of Lombard Street Research wrote recently in a research note entitled “The Asian savings glut is structural” that China’s investment in foreign assets is now so large that any shift would almost certainly move the global markets.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree