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Recently, data released by the U.S. Treasury Department showed that China reduced its holdings of U.S. Treasuries by $7.6 billion in March, bringing its holdings to $767.4 billion, the lowest since 2009.
Despite China's reduction in its holdings of U.S. Treasuries, global demand for U.S. Treasuries has not decreased. According to the data, the total amount of US Treasury bonds held abroad increased by $119.9 billion in March, reaching a total of $8.09 trillion.
It is worth noting that Japan, the largest holder of US Treasuries, chose to increase its holdings of US Treasuries by $19.9 billion in March, bringing its total holdings to $1.19 trillion.
While reducing its holdings of US bonds, the People's Bank of China has continued to buy gold in large quantities, and according to the latest data, as of the end of April this year, the People's Bank of China's gold reserves have reached 72.8 million ounces, increasing for 18 consecutive months.
The U.S. dollar is one of the world's most important reserve currencies and plays an important role in international trade, foreign exchange transactions, and international payments. However, against the backdrop of heightened global economic uncertainty and increased volatility in financial markets, central banks and investors are looking for more diversified asset allocations to reduce risk.
CITIC Securities expects that the U.S. inflation center will be difficult to rebound significantly, and the year-on-year CPI of residential items may still have room to decline in the second half of the year, and it is expected that the Federal Reserve will not cut interest rates or only cut interest rates once this year.
Analysts believe that China's move to reduce its holdings of U.S. bonds is in line with the trend of diversification of overseas asset allocation. Against the backdrop of increasing global economic uncertainty, diversification can reduce portfolio risk and improve overall returns.
The US dollar remains dominant
As of the first quarter of 2021, the dollar accounted for 56% of the world's foreign exchange reserves of US$6,991.2 billion, followed by the euro and the yen, with US$2,415.7 billion and US$692.1 billion, accounting for 19% and 6% respectively.
Under the current international monetary system, the risk of dollar depreciation is huge
Under the current dollar-dominated monetary system, the depreciation of the US dollar poses huge risks to the security of China's foreign exchange reserves, imported inflation and cross-border trade exchange rate fluctuations, which is not conducive to the stable development of China's economy.
Foreign exchange reserves stood at $3,184.5 billion at the end of January 2023
In recent years, the size of the mainland's foreign exchange reserves has remained at the level of $3 trillion. Since 2022, foreign exchange reserves have begun to decline, falling to a low of $3.03 trillion at the end of September. However, by the end of January 2023, the size of the mainland's foreign exchange reserves rose to US$3,184.5 billion, an increase of US$56.8 billion, or 1.82%, from the end of 2022. In January 2023, the U.S. dollar index fell and global financial asset prices rose overall, affected by factors such as global macroeconomic data and monetary policy expectations of major economies. Taking into account factors such as exchange rate translation and changes in asset prices, the scale of foreign exchange reserves increased in the month. The mainland's economy has continued to recover and shown an upward trend, and the endogenous driving force has been continuously strengthened, which is conducive to maintaining the basic stability of the scale of foreign exchange reserves.
According to an important survey released by the Federal Reserve Bank of New York on the 13th, Americans' expectations of high inflation continue to rise, and prices will remain high in the next few years. This means that inflationary pressures are likely to continue to increase, which could have a significant impact on both the US economy and financial markets. China is one of the largest creditors of the United States, and reducing its holdings of U.S. bonds can reduce capital risks.
Prospective Economist APP Information Group
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