As part of China’s increased efforts to diversify its foreign exchange reserves, due to the global liquidity and safety risks, the country may keep cutting its holdings of US debt, experts predicted on Thursday after analysing the most recent data from the US Treasury Department.
China, the second-largest foreign holder of US Treasury notes, reduced its holdings for five months in a row to August, totaling $805.4 billion, barely above the record low of $801.5 billion set in May 2009, according to US data.
China reduced its holdings at a time when the largest and third-largest foreign holders of US debt, Japan and the United Kingdom, respectively, boosted theirs. Japan’s debt holdings in the US rose by $3.7 billion to about $1.12 trillion, while its debt in the UK jumped by $35.7 billion to $698.1 billion.
China has allocated additional funds for the Belt and Road Initiative, and there is a portion going into agency bonds with greater returns.
According to experts, there is a mismatch between supply and demand for US Treasuries, which worsens the prognosis for US debt.
Furthermore, possessing an excessive amount of assets denominated in dollars may increase one’s susceptibility to geopolitical risks in light of the escalating geopolitical tensions.
Experts have cautioned that the misuse of the dollar’s hegemony status by the US has badly eroded confidence in the US currency worldwide and sparked an irreversible global de-dollarization trend.
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