China was recently the largest holder of US treasury securities, but has now lost that title to Japan after China started selling their securities rapidly. Chinese authorities are sacrificing their coveted position with significant financial and diplomatic value. They are preparing to engage in a bigger battle, to protect the Yuan’s value from plummeting. The battle is set to intensify this year, when President Donald Trump challenges the Yuan, along with China’s devaluation practices.
China’s holdings in US Treasury bonds recently fell by $66 billion. The US Treasury department said it was their 6th consecutive month of selloffs. But that’s only a fraction of their holdings, China now has their lowest amount of Treasury holdings since early 2010. Analysts predicted that trend would continue in November and December, and it did. The selloffs were a prudent move in which China needed in order to raise funds to protect the Yuan’s value, which is currently being pushed down by capital flight and the rising dollar.
An official from China’s State Administration of Foreign Exchange noted that the reduction in US Treasury holdings was not a strategic move, rather driven by market conditions. “The cutting is not strategic,” the official continues “All countries take the U.S. Treasury securities as an important target for their foreign exchange reserve investment, and China is no exception.”
Economist Jacob Kirkegard, with the Peterson Institute for International Economics, believes a dip in the Yuan’s value signifies Chinese authorities may be losing control of the economy. “Such a signal is likely to cause confidence in the currency, as well as the Communist government, among Chinese savers to drop dramatically” said Kirkegard. In 2016, China’s currency dropped by almost 7 percent against the dollar.
Chief economist of China’s central bank, Ma Jun, said that China was confident in keeping the yuan stable at a reasonable equilibrium level. But the slide has been significant. If Trump implements promises to spend heavily on infrastructure, the dollar should strengthen even more. When compiled with Trump’s allegations that China manipulates their currency, another potential reasoning is revealed. (RELATED: See more national debt news at Nationaldebt.news)
Last year, the Yuan was accepted as part of the International Monetary Fund’s coveted basket of currencies for Special Drawing Rights, an international reserve asset which can be exchanged for freely usable currencies. But the Yuan might lose its prestige over a Trump presidency. As part of its reserve management, China is expected to boost its sale of US Treasury securities in 2017, notably because Donald Trump is expected to employ a high level of deficit spending, which could drive down US bond values.
China’s move is in efforts to avoid a disruptive decline in their currency, and to avoid holding too many US notes and bonds during a rapid interest rate hike. “Note there is an inverse relationship between a strong dollar from rising U.S. interest rates (and rock-bottom interest rates elsewhere) and the value of U.S. T-bills and bonds” Kirkegard continues, “In investing in U.S. Treasurys, we take into consideration a package of factors, such as the interest rate hike by the U.S. Federal Reserve and the changes in yields, and based on that, we make dynamic adjustment to our holdings.”
Foreign central banks have combined to liquidate a record $405 billion in US treasuries, and China is selling off the most US paper it has since 2011. The wholesale liquidation of US Treasuries has been continuous, according to newly released TIC data. It is becoming increasingly obvious that foreign central banks, sovereign wealth funds, reserve managers, and almost every other political institution possessing US paper are liquidating their holdings at a bothersome pace. A recent surge in yields appears to be the trigger, but is not necessarily the common reason for the selloff. Is this a prelude to the globalist assault on Trump’s economy? (RELATED find more news about economic collapse at Collapse.news)
Written by Don Wrightman