China is considering options to diversify its US$1 trillion in foreign exchange reserves, central bank governor Zhou Xiaochuan said on Thursday. His comments, reported by Reuters, offered no indication of what the change may be – whether China will change the currency composition or shift to different asset classes. "We have had a very clear diversification plan for several years," he said on the sidelines of the European Central Bank conference in Frankfurt. China holds most of its foreign reserves in US Treasuries. The dollar hit a two-month low against the euro following his comments and US government bond prices fell. China is the second largest holder of US Treasuries with US$339 billion as of August. A Chinese shift away from the dollar could put upward pressure on interest rates.
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