China’s Still Dumping Dollars – Here Are The Facts!

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So by now we know that the dollarization Story the world is starting to dump US Dollars and China is leading the charge They're afraid of the sanctions imposed On Russia and how it could happen to Them especially with the U.S China Relations burning up in real time and I'm sure we have seen this chart before By the U.S treasury themselves and it's Showing how China has been deleveraging Their tragedy Holdings they started out 2021 with over a trillion dollars worth Of treasuries but 12 months later they Are down to just 867 billion dollars and Apart from Japan which is selling of Dollars for you curve control China is Leading the world in dumping dollar Denominated assets but now we have an Interesting report from Bloomberg with An extremely curious title right China Keeps faith in U.S bonds even though it Sells treasuries and according to the Report China has offloaded 12.6 billion Dollars of treasuries last year but Bought over 120 billion worth of agency Bonds and that shows us that overall China has actually increased their Holdings of American bonds and does this Mean that the dollarization is a lie is China secretly helping the U.S Government by buying up American debt Isn't China afraid of their assets Getting Frozen from the sanctions and All these they are great questions that

Need answers and this is where we need To dig deep into the numbers because the Devil is truly in the details here but Let's quickly touch on a misconception About the dollarization and I think this Term has been used so many times that Meaning has been Twisted right and the Narrative goes something like this China Wants to break free from the dollar System they want to sanction prove Themselves so they're going to dump all Their dollars tomorrow next month or in A year's time right however we must Understand that the dollarization does Take time and just because you wanted Next year doesn't mean it will happen Next year and this is the problem we are All forgetting the fact that China still Needs US dollars to import Commodities And to control the exchange rate of the Chinese Yuan now we know that China is Taking steps to conduct transactions Outside of the dollar that part is very Obvious they are buying Russian guests Using the Yuan they are setting up the Yuan clearing arrangement in Brazil and Also pushing for the classic Yuan for Oil trade in the Middle East through the Shanghai petroleum and gas exchange However the dollar is still the main Currency of trade so China has no choice But the whole sum dollars in their Results or International Trade right and The second reason is just as important

China needs to keep their exchange rate Low enough to become a net exporter China needs tight controls on their Currency they need ability to weaken the Chinese Yuan if it gets too strong and Since every currency is still packed to The dollar they need a constant inflow Of dollars right if the Yuan gets too Strong they simply sell the Yuan for US Dollars to weaken their currency now China is still focused on cheap exports To keep its labor market strong so they Constantly need to buy some dollars to Suppress the Yuan and what does China do With all those excess dollars they Reinvested back into U.S treasuries in Order to get some yield even at the risk Of getting sanctioned that's right and That is why we shouldn't be surprised That China still buys U.S bonds because If inflation in the US at six to seven Percent and it's probably more as we all Know you better reinvest those cash or Even lose purchasing power however Something interesting is happening China's dumping treasuries As We Know by Their agency Bond Holdings have Increased and why is that happening and The main reason is to chase higher Yields agency bonds are similar to U.S Treasuries but they have a higher yield Now agency bonds are issued by Government agencies or Government-sponsored Enterprises and not

The U.S treasury so the default risk is Higher and if you remember the names Fannie Mae and Freddie Mac they are home Mortgage companies backed by the US Government and the bonds issued by these Companies are considered agency bonds And there are many other agencies in the US that issue you Bonds Beyond the U.S Treasury and this includes the fhlv Bonds and bonds issued by the federal Farm Credit Banks and if you look at the Yield spread between treasuries and Agency bonds we can see they have been Rising higher since the Federal Reserve Started hiking rates right and now we Are at almost 30 basis points difference So for example if a U.S treasury is Yielding four percent the agency bond From Fannie Mae or fedimac might be Yielding 4.3 percent or more right so It's obvious China is chasing you but Why let's take a step back and think for A minute right you are the Chinese Government you still need to reinvest Your dollar Surplus into bonds and Whether it's agency bonds or treasuries If the U.S government wants to freeze Your assets There Is No Escape so you Might as well go for the bond with the Highest yield and whether you are Central Bank or individual investor the Best time to buy bonds is when bond Prices are low and yields are high right And we must also look at where we are in

This hiking cycle the market is betting That we have two or three more rate Hikes left we have Goldman Sachs and Bank of America forecasting a height to 5.5 percent for the Federal Reserve Starts to pause so it does make sense For China to buy U.S bonds at this Period because after the pause happens Comes the rate card and this will send Bond values up right and if a recession Does happen the market could rush back Into bonds or the Federal Reserve would Do yet another QE to buy up tons of Bonds to push yields down and this will Have a magnified effect on China's Agency Bond Holdings and they could Potentially earn more than a normal U.S Treasuries now let's just remember that Back in 2008 the US government built out Fannie Mae and Freddie Mac back in the Property crisis to the tune of 187 Billion so it's not a stretch to assume That power will save the agencies or see Another real estate melt down again but Make no mistake guys the dollarization Is still happening we just need to zoom Out and look at the bigger picture now We have established earlier that over The past 12 months China's treasury Holdings has dropped by around 166 Billion dollars some were sold and other Bonds were maturing and looking at China's Holdings of U.S agency bonds we Can see they have indeed a gigantic

Amount of agency that under their books Totaling over 250 billion dollars and if We add up every type of bond China has a Total of 1.4 trillion dollars worth of Long-term U.S Securities and that is a Huge amount and it's easy to assume that China is still a big fan of U.S debt Right but what we also need to focus on Is the long-term trend of China's Bond Holdings and looking at their bond Holdings over the past 12 months we can See the 160 billion dollar drop in Treasuries calculated earlier right it's There we can also observe an increase in U.S agencies from 205 billion dollars to 253 billion dollars and that is a 48 Billion dollar increase over the past Year so yes China has been buying more Agency bonds it says right here using Treasury data right but over all guys China still holds fewer U.S bonds today Than 12 months back they are down 127 Billion dollars which is slightly over Eight percent so the dollarization is Still in effect China is still gradually Unwinding their Holdings of dollar Denominator hazards nothing materially Has changed on the upside right and this Is assuming all the agency Bond Purchases were done by China's Central Bank it could be purchased by their Commercial State Banks or individual Investors as well and the data is very Opaque so this is as clear as we can get

So yes China still holds a ton of U.S Bonds and this should be a big concern For both sides the dollarization is Proceeding but it is still slow and Steady and in the meantime China's Holdings could always get Frozen 100 if They get on the wrong side of Washington Right I remember we recently had Anthony Blinken warning China of consequences if Beijing supplies weapons to Russia and Tensions between the two countries are Escalating it's not getting better so Why isn't China Rising faster I believe It boils down to two things right China's reopening and they need to Restart their economic engine and to do That they need to keep their currency The Chinese yuan in check Goldman Sachs Is forecasting how China's reopening Will boost Global GDP in 2023 by up to One percent but to accomplish that China Still needs a weaker Yuan to drive cheap Exports to the world so aggressively Dumping treasuries isn't visible yet and Secondly China is still working out on Internationalizing the Yuan if you want To hold fewer dollars you have to make Sure your currency becomes more useful And can be accepted globally right and That's why we see China pushing the Saudis to sell Yuan for oil and that's Why they are establishing the belt route Initiative right they want to increase The usefulness of the Chinese Yuan the

Digital Yuan so that they can hold fewer Dollars themselves and further sanction Proof themselves right so this will take Time guys it's not that overnight Affair We will continue to see China buying and Selling U.S bonds but I expect their Overall Holdings to gradually drop over Time and we have truly no idea what's Going on behind the scenes is China Using their bond earnings to slowly Stockpile physical gold are they waiting For the U.S economy to crash and the Federal Reserve to re-inflate bond Values before selling once again there's No concrete answer here we just have to Wait and see because there are just too Many unknowns at the moment but let's Realize just how much leverage China has Over the U.S bond market as well right Now if we do our calculations we will Realize that China holds almost 12 Percent of foreign U.S treasuries and 20 Of American agency bonds and this is a Big amount and if China starts to Seriously leverage their bonds this Could cause tremendous upward pressure On bond use and cost a Federal Reserve To step in right power might be forced To save the day once again by printing Money all over again and because China Holds a ton of agency that it could also Cause damage in the U.S mortgage Market We which is packed with all the MBS Right because the bonds are MBS and

According to Bloomberg China is on track To buy around 75 billion dollars worth Of agency bonds this year or about half Of all foreign demand for the Securities And if that happens guys then the United States will be even more indebted to China so just as China is vulnerable to The United States the fate of the U.S Economy also rests on China through a Power can come in and print out money to Backstop any bleeding in the U.S bond Market but that would just undermine Further trust in the US dollar it costs Inflation to soar even further and if The United States does the unthinkable And sanctions away China's Bond Holdings Their money it will be an even bigger Mistake now I fully believe that the Dollarization is just going to continue Right just take a look at this chart Guys it shows that the share of the Dollar has been slipping for decades This was long before the U.S imposed Sanctions on Russia and froze their Assets and now that they did the whole World they have all woken up and moving Away from the dollar is inevitable but That doesn't mean it is intimate it Won't happen tomorrow this will take Some time so we have to be patient so Let me know what you think will China Eventually break away from the dollar or Is the reserve currency of the world too Strong to escape from let me know in the

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