What the Bank of China Can Teach Us about Investing in Foreign Currencies
The head of China’s central bank, Zhou Xiaochuan, recently announced plans to keep diversifying China’s currency reserves away from the U.S. dollar. Zhou’s statement is important because of the power of his rationale, and because of the weight China’s large currency reserves gives to any of his statements. He plans to reduce the central bank’s exposure to the dollar over time to enhance “safety, efficiency, and liquidity.”
Should U.S. investors follow the lead of China’s central bank? Furthermore, if they invested like a central bank how would this approach influence their asset allocation, their currency selection, and their non-dollar investment style?