China steps up de-dollarization efforts by dumping record amount of US bonds

• China sold a record $53.3 billion worth of Treasury bonds and agency bonds in the first quarter, Bloomberg reported.

• Previously, it unloaded US debt to support its yuan, which weakened again in the face of the dollar’s recovery.

• The country is accumulating gold, which now represents the largest portion of its reserves since 2015.

China offloaded a record volume of US bonds in the first quarter, intensifying the country’s shift away from dollar-denominated assets.

According to US Treasury data cited by BloombergBeijing sold $53.3 billion in US Treasury and agency bonds from its reserves.

This is above the already attractive volumes China was selling last year. In total, one estimate calculated that the country sold $300 billion in US Treasury bonds between 2021 and mid-2023. China’s sales have grown to the point that markets worried about higher income.

But now, China appears to be accelerating its step back, as it seems unlikely that trade relations will improve between Beijing and the US.

Last year, China was already shedding US debt to prop up its yuan, given the considerable falls against the dollar. This could be the case again as the dollar has rebounded strongly due to aggressive US monetary policy.

In fact, the US Dollar Index reached 4.9% year to date, while the yuan only fell. This has made imports into the country expensive and could be a trend that will only get worse: if growing US protectionism continues to support the dollar.

Most recently was when the Biden administration announced tariffs on a range of advanced Chinese products, targeting everything from battery electric vehicles. Even if former President Donald Trump regains the White House in November, he has promised to impose tariffs of up to 60% on Chinese imports.

To diversify away from the dollar, Beijing is also diving deeper into buying gold. The metal now represents 4.9% of China’s reserves, the highest since at least 2015, Bloomberg said. It is a trend also followed by other central banks, which have been snapping up gold at record speeds.

But the strength of the dollar is not the only thing driving these trends. China is also de-dollarizing its reserves as part of a broader move to diversify global finance and reduce the dollar’s dominance.

Fear of US sanctions first triggered this pattern among central banks, after witnessing how the West applied dollar restrictions to Russia in 2022.

Read the original article at Business Insider