There’s More to China’s U.S. Debt-Dumping Rush Than Meets the Eye
Unprintable Alternative to Debt, De-Dollarization, Not Just China, Leaving the West for the East
“Gold is money. Everything else is credit.”
~ J. P. Morgan
Earlier this week, I told you how China has accelerated its de-dollarization efforts with rapid-fire sales of U.S. debt.
The country offloaded $53.3 billion worth of U.S. Treasuries and U.S. agency bonds. This is the largest single sale of U.S. debt in its history.
But, as I explained, even U.S. allies like Belgium and Switzerland have recently dumped an impressive $20 billion and $43 billion worth of Treasuries, respectively.
If this trend keeps up, it could be a big problem for the U.S. government. That’s because about one-third of its debt, or $8 trillion, is held by foreign countries.
The Unprintable Alternative
Now, the main reason foreigners own such a large portion of U.S. debt is simple: the U.S. dollar is the world’s primary reserve currency.
Currently, central banks hold about 58% of their foreign reserves in U.S. dollars. To earn returns on all this cash, they invest it in U.S. Treasuries, which are considered the safest assets in the world.
There’s just no alternative… or is there?
Well, China certainly seems to think so.
Just take a look at the next graph showing China’s holdings of U.S. Treasuries and gold as a percentage of its foreign reserves since 2015.
The chart above shows that as China cut back on U.S. debt, it ramped up its gold purchases. This inverse relationship between China’s gold and U.S. debt holdings became really noticeable around 2018, when the trade war with the U.S. kicked off. And as I mentioned in my last essay, by 2019, China had given up its spot as the biggest holder of U.S. debt to Japan.
…click on the above link to read the rest of the article…
