The Start of an International Run On the Dollar? China May Cut Its Dollar Holdings

China is getting nervous about its dollar holdings and may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation's biggest investment banks, China Daily is reporting.

"The crisis has made Chinese officials realize it's a bad idea to put all their eggs in one basket," wrote Hong Kong-based Ha. "This will likely lead to greater diversification of foreign exchange reserve investments."

It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, Ha said.

China holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt. It held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, he said.

The Dragon is spooked.

-Robert Wenzel