China lowers US T-bonds to expand cross border trade in Yuan
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China, the largest holder of US treasury bonds, has cut its American debt holding by USD 8.2 billion amid moves by its central bank to rapidly expanding the Yuan-denominated cross-border trade to promote the use of the Chinese currency in foreign trade.
China has made the first annual reduction in its holdings of US Treasury bonds in a decade sending a strong signal that it is beginning to rapidly diversify its portfolio of foreign currencies.
According to the latest monthly figures from the US Treasury Department, China's holdings of US Treasury bonds dropped for a fifth consecutive month in December to USD 1.15 trillion.
As per the revised data, China cut its holdings of US debt by USD 8. 2 billion in 2011 compared with the previous year.
It was the first time that the country had reduced its yearly holdings since 2001, state run China Daily reported on Saturday.
Experts are viewing the move as a sign that the country is accelerating the move away from dollar assets in search of more diversified investment channels, it said.
Analysts suggest that China's USD 3.2 trillion in foreign-exchange reserves means that the country is beginning to rapidly diversify its portfolio of foreign currencies.
Senior Chinese officials, including the central bank governor Zhou Xiaochuan, have stressed the importance of diversification of China's foreign-exchange reserves to minimise negative impact of fluctuations in the international financial markets.
The latest figure 'clearly indicates China's intention not to put all its eggs in one basket', Lu Feng, director of Peking University's China Macroeconomic Research Centre said.
"The Chinese government has reiterated that it will be actively involved in supporting the troubled euro area. With China's holdings of US debt declining, plans for Europe may be already in progress," Shen Jianguang, chief Asia-Pacific economist with Mizuho Securities Co Ltd said.
The reduction of dollar assets coupled with the ambitions in euro-zone can be interpreted as an important step by Chinese foreign-exchange regulators to promote the diversification of reserves, Shen said.
At the same time China expanded the yuan-denominated cross-border trade settlement scheme, in a move that will further promote the use of the Chinese currency in foreign trade and its rise as a global currency.
After the expansion, all enterprises with an import-and- export license will be allowed to settle their foreign trade in Yuan, the Daily reported.
Early, only selected businesses were allowed to do this. The move is designed to 'meet market demand and make foreign trade freer and more convenient', the Peoples Bank said in a statement.
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