Foreigners and the Fed hold large percentages of US. Treasury Bonds. What happens when foreigners reduce their need for U.S. dollars?
China shed $30.4 billion in U.S. Treasuries in July. Belgium sold $52.3 billion while Russia added $9.7 billion. The grand total of foreign holdings of US Treasuries fell $98.6 billion from $6.175 trillion in June to $6.076 trillion in July.
Foreign Holdings of U.S. Treasuries Updated September 16, 2015.
Here is a list of the largest foreign holders of U.S. Treasury Securities as of July 2015
( click on the chart to enlarge):
Why Foreign Nations Hold U.S. Treasuries
The United States dollar became the world’s reserve currency in 1944 towards the end of World War II. Because the U.S. dollar is the world’s reserve currency, demand for dollars remains strong as countries hold dollars in reserve to buy oil, settle international trades and to hold as their nations’ savings. These dollar reserves are held in the form of U.S. Treasury bonds (T Bonds).
The United States is able to incur massive deficits funded in part by foreign purchases of U.S. debt and more recently and increasingly through the Federal Reserve’s (the Fed) purchases of T Bonds as part of their multi-year/multi trillion dollar quantitative easing (QE) program whereby they print dollars out of thin air to buy them.
As a result of QE more than a few nations, notably Iran, Russia, China and Brazil have become increasingly concerned that the value of their T Bond holdings are being diluted by the Fed’s massive money printing campaign and have made efforts to reduce their need to hold dollars for settling their trade accounts.In October 2013, China called for the world to “de-Americanize” because “the destinies of others are in the hands of a hypocritical nation that have to be terminated”.
Such calls to “de-dollarize” have increased and been joined by Russia as the west battles Russia’s designs on Crimea and Ukraine with economic sanctions. Most recently, Russia and China signed a 30 year gas deal that supposedly does not involve dollars for payment.
Over the past two years China has launched a series of de-dollarization initiatives while holding their U.S. Treasury Reserves relatively constant.
China, however, however sold more than $30 billion of US Treasuries in July and there are reports they sold even more in August.
For a short history of the Bretton Woods Agreement of 1944 that established the gold standard that would back the dollar as the world’s reserve currency and the subsequent removal of the gold standard in 1971 and the creation of the “petro dollar” that maintained the dollar’s world reserve currency status, click here.
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