China has intensified its de-dollarization agenda by selling $101.9 billion in US Treasury securities over the past 12 months, reducing its holdings from $869.3 billion in March of last year to $767.4 billion in March of this year [350bb828]. This move is part of China's broader strategy to reduce its reliance on the US dollar and diversify its assets. China's holdings of US treasuries have steadily dropped from an all-time high of $1.31 trillion in November 2013, indicating a lack of confidence in holding US debt [350bb828] [24cdf2cd] [8ba8dd83].
China's actions align with its broader de-dollarization agenda and its efforts to mitigate risks associated with its heavy reliance on the US dollar. By reducing its holdings of US treasuries and increasing its gold reserves, China aims to diversify its assets and potentially weaken the yuan to make Chinese exports more competitive globally [24cdf2cd] [79d59c5e] [350bb828].
China's sale of US treasuries also comes as the global economic alliance known as BRICS considers the launch of a digital competitor to the US dollar. The BRICS agenda aims to challenge the global supremacy of the US dollar, and China's de-dollarization efforts are in line with this goal [350bb828].
Despite China's actions, Federal Reserve Governor Christopher Waller dismisses the demise of the US dollar as exaggerated. He acknowledges the evolving role of the world's reserve currency and points to America's use of sanctions against foreign nations as a factor in the dollar's future dominance. Waller believes that nations have "few practical alternatives to the dollar" and that in times of global stress, the world still runs to the dollar [350bb828].
China's sale of US treasuries and its broader de-dollarization agenda also coincide with rising geopolitical tensions between China and the US. Both countries have imposed import tariffs on each other, which could potentially lead to a trade war. Former International Monetary Fund (IMF) deputy director Desmond Lachman warns that a trade war would add inflationary pressure in the US as Chinese companies increase prices to cover the additional costs of entering the US market [7e7e59db].
Furthermore, economists are closely monitoring how China's moves to diversify its assets and increase commodity purchases will affect the global economy. The US Federal Reserve's decision to maintain the federal funds interest rate at its current level due to persistent inflation may impact China's asset diversification strategy. Higher interest rates could have implications for global financial markets and currencies [14bf4b29] [350bb828].
China has cut ties with a record number of US treasuries and agency debt bonds worth $53.3 billion, escalating tensions between the two countries. The tensions have been fueled by economic competition, geopolitical disputes, and ideological differences. China's motivations for selling off US treasuries include diversification of reserves, strategic realignment, and building gold reserves. The implications for the US and the global economy include reduced confidence in the US economy, higher interest rates, increased geopolitical tensions, and impact on global financial markets. China's move represents a significant escalation in the economic rivalry between the two countries and will shape global economic relations for years to come [9ad3563d].
China is working to 'displace' the U.S. dollar, according to Congressman Krishnamoorthi. He also states that the U.S. does not have its fiscal house in order. The article does not provide further details or context about these claims [4f655936].
A strong US dollar makes financing the growing federal deficit more challenging. A weaker dollar would be a massive tailwind for commodities and emerging markets. Interest payments currently represent over half of the federal deficit in the US. Treasuries must be sold yearly to finance the growing federal debt. Foreign governments reduce their holding of treasuries when the US dollar appreciates too much. Higher interest rates are required to entice foreign buyers when countries are not purchasing treasuries but are actively selling them. A high US dollar historically kept import costs low and increased the purchasing power of citizens and companies. The US faces an appreciating dollar made worse by a flight to safety post-COVID. The pressure is forcing the sales of treasuries, and the US can't risk a scenario where interest payments are rapidly accelerating into a growing deficit. The US dollar needs to weaken either by choice or by accident [72c67c0b].