Israel's Central Bank Adds Chinese Yuan To Holdings, Cuts Share Of US Dollars

Israel’s central bank is reducing its holdings of U.S. dollars and euros and adding four new currencies, including the Chinese yuan.

What Happened: Israel’s foreign currency reserves surpassed the $200-billion mark in 2021, an all-time high. The Jerusalem Post reported the Bank of Israel traditionally focused on the U.S. dollar, the euro and the British pound for its foreign currency holdings.

In addition to the yuan, the Bank of Israel will now include the Canadian and Australian dollars and the Japanese yen. To accommodate these changes, the central bank will reduce its holdings of the U.S. dollar from 66.5% to 61% and shrink its euro holdings from 30.8% to 20%.

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Why It Happened: Bank of Israel Deputy Governor Andrew Abir said the changes marked a shift in the central bank’s “whole investment guidelines and philosophy,” noting the increased level of the country’s foreign exchange reserves sparked "the need to earn a return on the reserves that will cover the costs of liability.”

Still, the policy change will not create a dramatic reconfiguration of the foreign currency reserve balance. The British pound holdings that were at 2.5% will increase to 5%, while the yen will also be at a 5% level and the Canadian and Australian dollars will be at 3.5% each. As for the yuan, it will only occupy 2% of the central bank’s holdings.

Photo: Moerschy/Pixabay.