China looks beyond the dollar

21st June 2011

China has accumulated more than $3 trillion of foreign currency assets – a doubling since the end of 2007 with around 60 to 70 per cent in US assets.

But the bank believes that of US $200bn accumulated this year, three quarters went to non US denominated assets.

China tends to purchase assets through other institutions such as custody banks – a prudent strategy to stop sellers taking advantage – but this means its strategy is not always clear.

While China has often indicated a desire to diversify this is the first time that it appears to have done so significantly.

Here Warren Mosler on Pragmatic Capitalism suggests that quantitative easing II has managed finally to scare China out of the dollar, but he remains uncertain whether assurances that the US will not embark on a third round of QE could change China's mind.

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