SOURCE: CNBC

China is heavily exposed to the U.S. dollar, but now, with the risk of “decoupling,” Beijing is silently diversifying its reserves to reduce its dependence on the world’s largest reserve currency, analysts say.

Ongoing trade tensions with the U.S. has “increased the risk of a financial decoupling” between the two largest economies, ANZ Research said in a recent report. The White House reportedly considered some curbs on U.S. investments in China such as delisting Chinese stocks in the U.S.

Beijing will therefore manage its risk by diversifying its foreign exchange reserves into other currencies, ANZ predicted, as well as build up its “shadow reserves.”

“Although China still allocates a high share of its FX exchange reserves to the USD … the pace of diversification into other currencies will likely quicken going forward,” ANZ says in the report, adding that the share of the dollar in the country’s foreign exchange reserves was estimated to be around 59% as of June.

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