For years most countries used the dollar as the major currency in its foreign currency reserves, but after the economic changes through the years countries started to shift their assets to more of diversified portfolios.

Taking China as a leading emerging country, we find that it has already started to give up the dollar for other currencies. What was most remarkable about China’s attempts to diversify its foreign currency reserves is that it has shifted its tendency to keep more of Gold reserves and it has started to limit those reserves.

China’s appetite for gold is limited because of the metal’s poor returns over the past 30 years; the nation’s foreign-exchange regulator was cited as saying in a report Tuesday.
Yi Gang, director of China’s State Administration of Foreign Exchange, said China’s gold reserves, at 1,054 metric tons, were the fifth-largest in the world, Dow Jones Newswires reported.

“Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold,” Yi was quoted as saying.

Calculations by the Dow Jones showed China’s gold holdings amounted to 1.6% of its total forex reserves, based on reported bullion holdings at the end of last year.

Yi acknowledged that China’s arrival as a gold buyer has had an impact on world markets for the precious metal, adding that moves by Beijing to purchase gold would “certainly” increase prices, according to the report.