China and Saudi Arabia reduce US debt holdings in anti-dollar move: Treasury data.
China and Saudi Arabia Reduce Holdings of U.S. Government Debt
In June, China and Saudi Arabia made significant cuts to their holdings of U.S. government debt, according to the latest Treasury Department data. Beijing sold over $11 billion in Treasury securities, bringing its total holdings down to $835.4 billion, the lowest level since 2009. Riyadh also reduced its U.S. debt holdings by over $3 billion to $108.1 billion, a decrease of nearly 9 percent from the previous year.
Global Impact
Other countries that decreased their Treasury holdings include India, Brazil, and the United Arab Emirates. However, Japan increased its U.S. debt holdings by nearly $10 billion. Despite these changes, foreign holdings of U.S. government debt rose to $7.563 trillion in June, indicating continued strong demand.
Potential Consequences
If more nations follow suit and reduce their Treasury security holdings, it could lead to lower demand for U.S. debt and higher interest rates. This would make it more expensive for the federal government to borrow money and could weaken the value of the dollar.
Geopolitical Shifts and Asset Allocation
Economists suggest several reasons for the reduction in Treasury holdings by China, Saudi Arabia, and other countries. The Federal Reserve’s tightening cycle has led to higher interest rates, potentially lowering bond prices. Additionally, the strengthening U.S. dollar has negatively affected other currencies, particularly for countries that rely on imports.
Furthermore, countries may be diversifying their assets due to fiscal challenges faced by the U.S. government and engaging in de-dollarization campaigns. The International Monetary Fund’s data shows that more governments are adding currencies such as the Chinese yuan, Japanese yen, Australian dollars, Canadian dollars, and Swiss francs to their foreign exchange reserves. Central banks have also been increasing their gold reserves.
Saudi Arabia’s reduced Treasury holdings reflect its pivot away from the United States and towards Asia. The country has been strengthening its economic and energy cooperation with China, which some experts believe threatens American interests. This shift has encouraged other major markets to join the anti-dollar movement and enhance regional trade.
While the impact of these changes may not be immediate, they could have long-term implications for the global financial landscape.
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