US-China decoupling: Is Beijing ramping up its diversification away from the US dollar?

US-China decoupling: Is Beijing ramping up its diversification away from the US dollar?

China may be speeding up the diversification of its foreign exchange reserves away from US dollar assets in response to potential American financial sanctions, but there are clear limits on how far it can go in its de-dollarisation push, according to analysts.China has long tried to undermine the US dollar’s dominant role in the international monetary system, despite the fact that the bulk of its reserves are in dollar-denominated assets.

But amid fast deteriorating bilateral ties with the US, including the threat of financial sanctions, debate about reducing dependence on the world’s largest reserve currency has taken on new urgency in China.

Beijing cut its holdings of US government debt for three consecutive months to US$1.07 trillion in late August, the lowest level since March 2017, according to data from the US Department of Treasury.