Some key actions and strategies associated with China’s dedollarization efforts included:
China’s central bank, the People’s Bank of China (PBoC), has been increasing its gold reserves for the past 10 months. In August, the PBoC added 29 tons of gold to its reserves, bringing the total to 2,165 tons. This is the largest gold purchase by the PBoC since 2016.
Increasing Gold Reserves: China has also been accumulating gold reserves, which is seen as a way to hedge against currency volatility and reduce reliance on the US dollar. China’s gold purchases are part of a broader effort to reduce its reliance on the US dollar. The dollar is currently the world’s reserve currency, which means that it is the currency that most countries use to hold their foreign exchange reserves. However, China has become increasingly wary of the dollar in recent years, due to its volatility and the fact that the US government can print more dollars at will.
China’s dedollarization efforts have also included reducing its holdings of US Treasury bonds. In June, the PBoC’s holdings of Treasury bonds fell to their lowest level since 2009.
Increasing Use of the Chinese Yuan (Renminbi): China has been promoting the international use of its own currency, the yuan (or renminbi, RMB). This includes encouraging trade partners to settle transactions in yuan, establishing currency swap agreements with other countries, and expanding the offshore market for the yuan.
Creating Alternative Financial Infrastructure: China has been working on establishing alternative financial infrastructure to reduce reliance on Western-dominated institutions like SWIFT (Society for Worldwide Interbank Financial Telecommunication) and the IMF (International Monetary Fund). For example, China launched the Cross-Border Interbank Payment System (CIPS) to facilitate international transactions in yuan.
Bilateral Trade Agreements: China has entered into bilateral trade agreements with various countries that allow trade to be conducted in currencies other than the US dollar. These agreements are often seen as a step toward dedollarization.
Digital Currency Initiatives: China has been developing its own digital currency, known as the Digital Currency Electronic Payment (DCEP) or digital yuan. This could potentially provide an alternative to traditional currency for international transactions.