"China and Japan are the main selling force"! The United States issued a large number of bonds, but it was sold by many countries! These countries began to "barter" only to get rid of the dollar ...
According to Xinhua Finance, as of June 30, the US Treasury issued more than $9 trillion in Treasury bonds of various maturities in the first half of the year, a sharp increase of 23% year-on-year.
However, according to the Global Times, the US Treasury Department released the latest version of the international capital flow report as of May this year on July 18, local time. The report shows that US Treasuries are being reduced by the three largest overseas holders, Japan, China and the United Kingdom.
In May, Japan, China and the United Kingdom held $109.68 million, $846.7 billion and $666.6 billion in U.S. debt, respectively, down $30.4 billion, $22.2 billion and $14.1 billion from April.
According to reference news, TD Securities analyst Gennady Goldberg commented on the data released by the US Treasury: "Japan and China sold US Treasuries in May, which attracted attention. They led a sell-off by foreign investors in May. ”
The financial analyst also drew attention to the outflow of funds from deposit accounts in countries and regions such as the United Kingdom, the Cayman Islands and the Bahamas. "All of these countries and regions are also experiencing capital outflows," he explained. This generally indicates a decline in foreign investor interest in U.S. Treasuries. ”
Image source: Xinhua News Agency
6 of the top 10 creditors reduced their holdings
China and Japan are the main sellers of the sell-off
Foreign investor investment in U.S. Treasuries continued to decline in May, with China and Japan playing the main sell-offs, according to data released by the U.S. Treasury. Among the top 10 U.S. debt holders, 6 countries (regions) have chosen to reduce their holdings of U.S. bonds. The scale of U.S. bonds increased by the remaining four countries is not as large as the amount that Japan reduced that month.
Specifically, Japan's holdings of U.S. Treasuries fell by $30.4 billion in May, the largest since October last year. China remains the second-largest holder of U.S. debt, although its holdings have been below $1 trillion since last April. And in the period ending February this year, China reduced its holdings of U.S. bonds for seven consecutive months. China's U.S. bond holdings are now approaching their May 2009 low of $801.5 billion.
Nikkei Shimbun previously reported that China's holdings of U.S. Treasuries, which were once the largest in the world, were overtaken by Japan around June 2019 and are now in second place. As a result of the trade war, the antagonism between China and the United States in high-tech fields such as semiconductors has intensified, and this antagonism is expanding to the financial sector.
According to the Global Times, the chief economist of CITIC Securities told reporters on the 19th that there are two main reasons why China's position in US bonds fell to a 13-year low, one is the active net reduction of holdings, and the other is the passive reduction of positions caused by negative valuation effects. In terms of active net reduction, first of all, the Fed's aggressive interest rate hike led to lower U.S. bond prices, and in order to reduce the loss of falling securities prices, China reduced its holdings of U.S. bonds; Second, after the outbreak of the Russian-Ukrainian conflict, China's concerns about the safety of assets such as US bonds have increased. In addition, the Fed's interest rate hike has pushed down the price of U.S. bonds, and the negative valuation effect will also cause China's position in the United States to passively decrease.
It is clearly believed that in the context of steadily promoting financial opening up, the importance of the United States to China's outbound investment has decreased in the past few years, and China's reduction of the importance of investment in the United States may also consider the risk of US financial sanctions. At the same time, the internationalization of the renminbi is also pushing China to reduce its dependence on US dollar assets, and China's foreign portfolio investment is expected to become more diversified.
Xi Junyang, a professor at Shanghai University of Finance and Economics, told reporters on the 19th that many countries around the world are gradually reducing their dependence on the US dollar, although the US dollar is still the main international currency, but with the changes in the US economic situation and foreign financial conditions, especially after the outbreak of the Russian-Ukrainian conflict, the United States imposed financial sanctions on Russia, so that many countries began to reduce their excessive dependence on the US dollar. The dollar holdings of these countries cannot all exist in cash, and buying U.S. Treasuries becomes an option, and if the amount of dollars they hold is decreasing, the holdings of U.S. bonds will also decrease.
In addition, according to CCTV news, the previously uproarious US debt ceiling crisis has also exacerbated people's distrust of US national debt. Experts say that the continuous increase in the debt ceiling in the United States in recent years will negatively affect the credibility of the dollar globally, so that the value of the dollar and dollar assets is gradually losing the trust of investors.
As the US government continues to raise the debt ceiling, the phenomenon of "eating less food" has become more and more serious. By the end of 2022, the amount of public debt outstanding in the United States also exceeded the combined economies of China, Japan, Germany, and the United Kingdom, and this level was 60 percentage points higher than before the 2008 financial crisis.
Lu Zhe, chief economist of Deppon Securities, said that the continuous debt ceiling crisis in the United States will affect the status of US Treasury bonds in the minds of investors to a certain extent, and many official and private investors will choose other assets to optimize asset allocation, which will inevitably bring about a decline in the credibility of the US dollar and the intensification of the wave of "de-dollarization" worldwide.
Many countries promote "barter"
to get rid of dollar control
In addition to reducing their holdings of U.S. debt and conducting cross-border settlements in their own currencies, many countries threatened by the hegemony of the dollar are also trying to get rid of the control of the dollar in other ways.
According to CCTV news, at present, "barter trade" such as "oil for gas" and "tea for oil" has quietly emerged between some countries threatened by US financial hegemony, aiming to get rid of the control of the dollar.
△Exterior view of the U.S. Treasury Department building (photo from Reuters)
Recently, many places in Iraq have been hit by high temperature and heat waves, and the maximum temperature in some areas is even close to 50 degrees Celsius. However, due to the obstruction of natural gas imports due to US sanctions, Iraq's electricity supply is seriously insufficient, and a large number of people are struggling to live in the heat. Iraqi Prime Minister Sudani recently announced that after several days of negotiations, Iraq has now reached an agreement with Iran on the exchange of crude oil for natural gas, thereby bypassing the US sanctions against Iran and improving Iraq's domestic power supply.
△Screenshot of Reuters report (pictured is Iraqi Prime Minister Sudani)
According to multiple media reports, between one-third and 40% of Iraq's electricity supply comes from Iran, including direct imports of electricity from Iran and imports of Iranian natural gas for power generation. Therefore, whenever summer comes, many places in Iraq usher in high temperatures, electricity consumption surges, and ensuring Iran's natural gas imports to ensure electricity supply is very critical to the daily life of Iraqi people.
However, due to U.S. sanctions imposed on Iran's oil and gas sector, Iraq was unable to make direct payments to Iran. It is understood that Iraq needs to remit the money to the bank account designated by the United States and obtain the approval of the US side before it can be transferred to Iran. At the same time, Iran's withdrawal of funds is also restricted and can only be used to import goods that are not subject to US sanctions.
Farhad Aladdin, adviser to the Iraqi prime minister on foreign affairs, said that the complicated approval process of the US side has caused Iraq to delay payment many times, and the Iranian side has not been able to get the money. As a result of delays in approving the transfer by the United States, Iraq's arrears in payments to Iran have accumulated to approximately $12.1 billion. In desperation, Iran can only cut or even stop supplying natural gas to Iraq every once in a while. Iraqis have fallen victim to unilateral U.S. sanctions against other countries.
Experts believe that the "oil-for-gas" agreement between Iran and Iraq is another attempt to circumvent US financial sanctions. The "weaponization" of sanctions by the United States threatens global economic stability and people's well-being. In the long run, this will gradually weaken the hegemony of the dollar.
In order to counter the threat of US financial hegemony, "tea for oil" also came into being.
Sri Lanka said a few days ago that it will reach a "tea for oil" barter trade with Iran as soon as possible to offset the $250 million in oil owed, and trade without relying on the US dollar.
△Screenshot of Reuters report
In addition, Pakistan recently proposed plans to open barter trade with Russia, Afghanistan and Iran. Pakistan's Commerce Minister Saeed Navid Kamal said a barter deal could reduce Pakistan's dependence on foreign currencies such as the US dollar.
△Screenshot of the website of the US "Diplomat"
The European "Modern Diplomacy" website recently published an article quoting analysts as saying that due to the sanctions imposed by the United States on many countries, the era of "petrodollars" seems to be coming to an end at an "alarming speed".
The American magazine "International Banker" believes that considering that about 1/4 of the world's population is directly affected by US financial sanctions, the momentum of "de-dollarization" around the world may not be so surprising.
"The dollar has always been America's weapon"
"De-dollarization" has become a financial trend
Although the US dollar is still the main international currency, with the changes in the US economic situation and foreign financial conditions, especially the financial sanctions imposed by the United States on Russia after the comprehensive escalation of the Russian-Ukrainian conflict, many countries have begun to reduce their excessive dependence on the US dollar.
According to a new survey published in June by the Official Forum of International Monetary and Financial Institutions (OMFIF), the proportion of central banks planning to increase their euro holdings will increase in the next two years compared to the past two years. At the same time, in the long run, the demand for RMB by many central banks will also increase significantly.
The survey covers 75 central bank reserve managers around the world.
Economists from many countries said that the United States has always used the dollar as a weapon, abusing the dollar's hegemony and aggravating world economic risks. Today, "de-dollarization" has become a financial trend.
French economist Philippe Wichdel criticized that "the dollar has always been the weapon of the United States, the United States does what they want, and other countries solve the problems caused by this".
As Russian Foreign Minister Sergei Lavrov said, the use of local currency settlement will promote the recovery of the world economy, international trade and investment, and the use of local currency settlement is of practical significance and is an inevitable choice in the future.
Editor|Duan Lian Du Bo
Proofreading | He Xiaotao
Daily economic news is synthesized from Xinhua Finance, Global Times, Reference News, CCTV News, 21st Century Business Herald, public information, etc
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