The three major creditors of Japan, China, and the UK are selling US bonds! Direct to the Major Crisis of the US Dollar | US Treasury | Crisis

The US treasury bond suffered from "double weather of ice and fire".

On one hand, the US Treasury is still frantically issuing bonds, and on the other hand, US bonds are being sold by the three major creditors of Japan, China, and the UK.

This is related to the current wave of "de dollarization" in various countries, and also directly points to the major crisis facing the US dollar itself.

The three major creditors sell US bonds

According to the data, as of June 30, the US Treasury Department issued more than 9 trillion US dollars of treasury bond of various maturities in the first half of the year, up 23% year on year. But the latest international capital flow report recently released by the US Treasury Department shows that as of May this year, Japan, China, and the UK, the three major overseas holders, are selling US bonds.

In May this year, Japan, China, and the United Kingdom held US Treasury bonds of $10968 trillion, $846.7 billion, and $666.6 billion, respectively, a decrease of $30.4 billion, $22.2 billion, and $14.1 billion compared to their holdings in April this year.

Since April last year, China's US bond holdings have been below $1 trillion. As of February this year, China has been reducing its holdings of US bonds for seven consecutive months. Currently, China's US bond holdings have reached a new low since May 2010.

The Chief Economist of CITIC Securities clearly believes that there are two main reasons why China's holdings of US bonds have dropped to a 13-year low: active net reduction behavior and passive reduction caused by negative valuation effects.

In terms of active net reduction, the Federal Reserve's aggressive interest rate hikes have led to a decline in US bond prices. In order to reduce losses from falling securities prices, China has reduced some of its holdings of US bonds. At the same time, after the outbreak of the Ukraine crisis, China's concerns about the safety of assets such as US bonds have increased.

In terms of negative valuation effect, the Federal Reserve's interest rate hike has driven down US bond prices, and the negative valuation effect will also cause China's passive reduction in its holdings in the US.

He also mentioned that in the context of steadily promoting financial openness to the outside world, the importance of the United States in China's outward securities investment has decreased in the past few years. China may also consider the risk of financial sanctions against the United States by reducing the importance of investment in the United States. In addition, the internationalization of the renminbi is also driving China to reduce its dependence on US dollar assets, and China's outward securities investment is expected to become more diversified.

Setting off a wave of "de dollarization"

The global wave of de dollarization is underway.

According to the latest survey report released by the official forum of international monetary and financial institutions, the proportion of central banks planning to increase their holdings of euros in the next two years will increase compared to the past two years. Meanwhile, in the long run, the demand for the renminbi from central banks in multiple countries will also significantly increase. The official forum of international monetary and financial institutions surveyed 75 central bank reserve management institutions worldwide, with a total managed asset size of nearly $5 trillion.

Global asset management company Eurizon SLJ Capital Limited also stated in April this year that over the past 20 years, the reserve currency status of the US dollar has gradually been eroded. Although the strength of the US dollar in international trade remains unchallenged, it experienced a sharp decline in 2022.

Lian Ping, Chief Economist of Zhixin Investment, previously stated that according to incomplete statistics, 85 countries have joined the process of "de dollarization" in various ways so far. Various signs indicate that an increasing number of countries worldwide are intentionally weakening the role of the US dollar in their foreign economic and trade exchanges. In some areas closely related to their own interests, even American allies such as Britain, France, and Germany choose to bypass the US dollar system. The global process of de dollarization is on the rise.

In his view, the anti globalization behavior led by the United States has suppressed the international use of the US dollar, and the US government has used anti globalization measures such as suppressing other trading partners and sanctioning strategic competitors as important means to ease domestic conflicts. This will inevitably lead to some countries implementing countermeasures, while more countries have doubts and aversions to the credit of the United States and the US dollar, fearing that their own interests will be damaged in the US dollar system, and thus joining the process of "de dollarization".

Zhong Zhengsheng, Chief Economist of Ping An Securities, believes that the four major factors have driven up the "de dollarization" sentiment since the beginning of this year. Firstly, recent data shows that countries are reducing their holdings of US dollar assets and increasing their holdings of gold, and "de dollarization" is accelerating from discussion to action. Secondly, the settlement of non US dollar currencies such as the Chinese yuan is advancing rapidly, which has shaken the position of the US dollar. Thirdly, the outbreak of the crisis in small and medium-sized banks in the United States has weakened the Federal Reserve's determination to tighten and its ability to preserve the value of the US dollar. Fourth, the US debt ceiling farce threatens the credibility of US debt.

Is the US dollar crisis here?

Whether it's debt risk issues or financial sanctions, the US dollar crisis that the government has personally brewed has emerged.

US Treasury Secretary Yellen said earlier that the US legislators did not do anything beneficial to the US dollar, and the US debt ceiling crisis has damaged the global confidence in the US's ability to meet its debt obligations, which has impacted the reputation of the US dollar.

JPMorgan analysts believe that political fragmentation in the United States poses risks to the US dollar. The political imbalance in the United States is the primary factor threatening the long-term dominance of the US dollar, which may hinder efforts to manage national debt and prevent the government from taking measures to stabilize the economy during crises due to fiscal constraints.

JPMorgan Chase stated that the impact of "de dollarization" and the stability of the US dollar will have a widespread impact on all asset classes, including causing a decline in the US dollar, a decrease in the P/E ratio of US stocks, and an increase in US bond yields. Therefore, its recommendation is for investors who are concerned about the decline of the US dollar to reduce their holdings in the US dollar, the US market, financial stocks, and long-term bonds in their investment portfolios.

Lian Ping frankly stated that in the short term, the US dollar will still dominate the international monetary system, which is determined by the inertia of international trading formed by the global US dollar trading stock. With the drastic changes in the world economic and political situation in the coming period, the weakening trend of the dominant position of the US dollar may accelerate in stages. Overall, the change in the dominant position of the US dollar will not happen overnight, and "de dollarization" will be a long-term evolutionary process.

Xu Feibiao, a researcher at the China Institute of Modern International Relations, stated that the current global trend of "de dollarization" is actually a "manifestation" of the crisis in the US dollar system. Although it may seem chaotic and scattered, there is a main thread behind it: promoting local currency transactions and reducing excessive dependence on the US dollar.

He believes that with the relative decline of the United States in the global position, the continued dominance of the US dollar will not only have an impact on global economic stability, but also have more harm than good for the US economy. Of course, due to the inertia of the US dollar system and the current lack of a second currency capable of replacing the US dollar, the status of the US dollar will continue to be maintained for a long time, but the decline of the US dollar is already the trend.