Israel Adds Chinese RMB Yuan To Its Central Bank Holdings, Reduces US Dollar and Euro Assets

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The Deputy Governor of the Bank of Israel has announced it will reduce its US dollar holdings and add the Chinese RMB Yuan to its basket of foreign currency reserves. The bank has previously only held US dollars, Euros and British Pounds.

Andrew Abir stated that “We need to look at the need to earn a return on the reserves that will cover the costs of the liability”

The bank is diversifying its risk and also adding Canadian and Australian dollars, while reducing its US dollar and Euros reserves.

The Central Bank has foreign currency reserves in excess of US$200 billion, and is to allow an initial 2% of Chinese currency of its total holdings, together with 3.5% each for the Canadian and Australian dollars, for a combined total of 9% reduction in US dollar and Euros, meaning the Euro’s share will fall from 30% to 20%, and the US dollar to 61% from 66.5%. According to the International Monetary Fund, the US dollar’s share of total global currency reserves has fallen to its lowest point in over two decades.

The Israeli Central Bank rarely makes such changes, meaning that it expects US dollar and Euros values to potentially decline, probably in the wake of the self-imposed loss of energy trade with Russia and subsequent rising prices expected to negatively affect their economies. The steps have also built in an Israeli recognition that the US could impose future sanctions upon Israel and have instigated the move as an perceived increased risk of Washington doing so at an as yet to defined future time. Israel’s bilateral trade with China is about US$13.6 billion per annum while the country retains strong trade and investment ties with Russia. The sanctioned Russian Oligarch Roman Abramovich is Jewish and has significant investments in the country.

The next steps to be anticipated is whether other Central Banks elsewhere will follow the same lead. Russia attained near complete de-dollarization of its foreign reserves in 2020.

The US dollar tends to be stable, however as we pointed out in last week’s article ‘Russia prepares to move to a gold standard‘ questions will now start to be asked about the suitability of longer-term dominance of the US dollar. Israel has just answered. The question is now one of potential acceleration as Washington’s use of the dollar as a weapon has not gone unnoticed among other major trade economies.

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Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. The firm assists British and Foreign Investment into Asia and has 28 offices throughout China, India, the ASEAN nations and Russia. For strategic and business intelligence concerning China’s Belt & Road Initiative please email silkroad@dezshira.com or visit us at www.dezshira.com

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