Israel Adds Chinese Yuan to Foreign Exchange Reserves

By: Frank Knopers 

Israel's central bank takes Four new currencies in its reserves, including the Chinese yuan. It is the biggest adjustment in the composition of its reserves in more than a decade. In addition to the Chinese currency, the central bank also wants to hold Japanese yen, Australian dollars and Canadian dollars. This adjustment is mainly at the expense of its position in euros, which has fallen from almost 31% to 20%. As a result of this adjustment, the share of dollars in foreign exchange reserves will shrink from 66.5% to 61%.

Until recently, Israel held only US dollars, euros and British pounds, but recent developments have forced the central bank to add other currencies to its reserves. Since the war in Ukraine, Europe and the United States have blocked Russia's foreign exchange reserves. As a result, doubts have arisen in non-Western economies about the reliability of the euro and the dollar. Some analysts, such as Credit Suisse's Zoltan Pozsar, expect that commodity currencies will become more important as a result.

Israel's central bank may be preparing for a scenario in which it needs other currencies to buy commodities. For example, Russia is already asking rubles for gas and is considering doing the same for other raw materials. Just recently, Saudi Arabia hinted that it may want to pay for part of its oil in Chinese yuan. Figures from the IMF show that the dollar's share of central banks' foreign exchange reserves at the end of last year Dropped to 59%, the lowest share since 1995. Meanwhile, the shares of the Chinese yuan, the British pound and the Canadian dollar have risen.

Israel Adds Other Currencies to Reserves

Adjustment of foreign exchange reserves

In recent years, Israel's foreign exchange reserves have grown substantially, thanks in part to increasing production and exports of natural gas. For example, total reserves rose from $120 billion to more than $200 billion in two years. This rapid increase is forcing the country to think more about the composition of its reserves. With the plan to hold 2% in yuan and 3.5% in both Australian and Canadian dollars, Israel is bringing its foreign exchange reserves more in line with the international average this year.

It is striking that Israel's central bank does diversify its foreign exchange reserves, but it still does not have gold. On the most recent balance sheet We don't see any gold reserves from the central bank. Figures from the World Gold Council show that Israel has not had a gold reserve for the past two decades. For a country that devotes an above-average amount of time and attention to its security, this is a remarkable strategy. With $200 billion in foreign exchange reserves, it seems obvious to hold some gold as well. Especially with increasing geopolitical risks and the transition from a dollar system to a multipolar world order.

This contribution comes from Geotrendlines

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