Project Kunpeng China's holdings of U.S. Treasuries are on a downward trend, raising concerns for the U.S. Treasury. Over the past decade, China's holdings of U.S. Treasuries have fallen by 43 percent, with a net sell-off of $540 billion. China's holdings of U.S. debt fell to $782 billion, the lowest level since 2009, according to the latest data. Analysts say the U.S. is concerned that China will further reduce its holdings of U.S. bonds, possibly even below $100 billion. U.S. Treasury Secretary Janet Yellen plans to visit Beijing again in 2024, and one of her tasks is to ask China to continue buying U.S. bonds. This reflects the U.S. Treasury's concerns about the world's major buyers of U.S. Treasuries, but Yellen bluntly stated at a congressional hearing that she would not commit to paying the full amount of U.S. Treasuries to global creditors if the U.S. is once again at risk of the debt ceiling and is unable to make full payments. However, the issue does not end there.
Recently, the sovereign credit of the United States was downgraded, and the news caused quite a stir around the world. A sovereign credit downgrade means a lower risk rating for a country's debt, which could lead to higher debt costs and lower international investor confidence, which in turn could affect the U.S. economy and the stability of global financial markets.
At the same time, the debt ceiling issue in the United States is once again in focus. The debt ceiling is the maximum amount that can be borrowed without additional authorization, and exceeding the debt ceiling will result in the inability to raise funds to pay bills, potentially triggering credit risk and market turmoil. Against this backdrop, there may again be a federal shutdown crisis due to the inability to reach a budget agreement, which will not only affect domestic political stability, but also adversely affect the global economy.
Behind China's sharp sell-off of U.S. bonds reflects global doubts about the hegemony of the dollar and concerns about the state of the U.S. economy. In addition to China, more than 20 global official institutions, including Japan, the United Kingdom, Saudi Arabia, Germany, and Belgium, have also continued to sell US bonds, bringing their total holdings of US bonds to 7$565 trillion, down from a year ago. Japan and China were the countries that sold the most, while the market sell-off of US Treasuries continued.
At the same time, China's ** purchase level reached a new high in nearly five years, becoming one of the main ** buyers among global central banks. Global ** demand reached 4,448 tonnes in 2023, with China emerging as the most important growth engine. China's demand has increased significantly, with imports significantly higher than the average of the past five years, further confirming China's trend of increasing purchases. As of January this year, China had shipped 4,046 tonnes of ** from overseas back to China, and the central bank increased its holdings of ** reserves for 15 consecutive months, pushing it to a record high.
Small traders believe that in the context of the questioning of the hegemony of the US dollar and the obvious increase in the trend of global central bank purchases, some countries are beginning to consider ** as reserves for alternative currencies. The BRICS countries may introduce a unified new currency anchored to the 2024 summit to weaken the dollar's position. At the same time, Middle Eastern oil-producing countries such as Saudi Arabia, Iran, and the United Arab Emirates are accelerating the accumulation of reserves, and exploring the use of alternative currencies such as the renminbi for international settlement. These moves show the global financial system's distrust of the dollar's hegemony, as well as its trust in ** as a stable currency.
* And are financial regulators able to respond effectively to risks? Will the banking sector be able to withstand external pressures and remain stable? Feel free to leave your views in the comment section.