China Makes Financial Moves Against the US

Several US administrations have continuously seen China as a currency manipulator and currency manipulator. While this is true, China’s recent actions can scarcely be described as basic currency manipulation.

China has been working hard to de dollarize as rapidly as possible. Part of the dedollarization process has been reaching arrangements with other nations to swap the yuan for their own currencies. By avoiding the quick system, the US currency is effectively removed from any transactions.

The most recent arrangement was with the Bank of Israel, Israel’s central bank. For the first time, the Israeli central bank has decided to retain Chinese yuan in reserve as part of its currency reserves. At the same time, Israel’s central bank intends to cut its holdings of European Union euros and US dollars.

The US dollar will drop from around 66.5 percent to barely 61 percent of the Israeli Central Bank’s reserve reserves. The euro’s share of the bank’s reserve currency reserves will drop from 30% to 20%. The pound will more than treble in value, accounting for nearly 5% of the Bank of Israel’s reserve currency assets. The Japanese yen will account for around 5% of the bank’s assets. The Australian dollar will account for 3.5 percent of the bank’s assets, while the Canadian currency will account for 3.5 percent. The Chinese yuan will account for 2% of the bank’s total assets.

According to a recent poll by the International Monetary Fund, the percentage of US dollars kept in foreign exchange reserves throughout the world has dropped to its lowest level since 1995. This movement in global reserve holdings has boosted the pound, yuan, and euro. China has advocated for a greater position for the yuan in global reserve currencies. This progress has been hampered by limited convertibility and tight supervision by Chinese officials.

Despite this, the yuan has recently received more interest from throughout the world. In March, Saudi Arabia initiated discussions with China about selling its oil in yuan. This was a significant move, as Saudi Arabia had traditionally relied only on the US dollar. This historic exclusivity was crucial in maintaining the value of the US dollar as a reserve currency.

If China revealed its full holdings, the yuan and gold prices would skyrocket, which would be unwelcome. This would devalue the country’s 3.2 trillion dollar foreign exchange reserves.