China is accelerating its dedollarization with record sales of US Treasury bonds. The world will soon need a new reserve currency: Bitcoin.
China no longer invests in US debt
China has significantly reduced its holdings of US Treasuries, shedding $76 billion over the past three months. Its dollar reserves are at their lowest since 2009, at 767 billion.
According to US Treasury data, China holds less than 10% of the 8.1 trillion in Treasury bonds held in reserves globally. And only 2.2% of the total debt of the United States which reaches 34,537 billion dollars.
Japan is the country holding the most Treasury bonds ($1,187 billion). Then come China, the United Kingdom (728 billion), Luxembourg ($400 billion), Canada ($359 billion), Ireland ($317 billion) and Belgium ($317 billion).
China's massive sales are likely in retaliation for the banning of TikTok as well as recent tariff hikes on a range of Chinese products. Donald Trump even threatens to raise them to 60% in the event of re-election in September.
“China's sale of US debt securities could accelerate with the resumption of the trade war between the two nations”says Stephen Chiu, Asia FX strategist for Bloomberg Intelligence.
Conversely, diplomatic and economic relations are in good shape with Russia. Currently in China for his first trip abroad since his re-election, Vladimir Putin declared:
“The timely joint decision to ensure that transactions are carried out in our national currencies has given a strong boost to our trade. Today, 90% of payments are made in rubles and yuan.”
Dedollarization is gaining ground and the ten BRICS nations are not left behind. On this subject, don’t miss our article: IMF sees dollar giving way to other reserve currencies.
Dedollarization = Inflation
It has been 37 consecutive months that annual inflation has not been below 3% in the United States. Prices have increased by almost 20% in less than four years. And certainly more since we know that statistical institutes use numerous accounting tricks to camouflage reality.
In short, the dollar has lost a fifth of the purchasing power of the dollar in less than a handful of years. The American Dream seems very distant and dedollarization is not going to help things.
The United States has long benefited from nations keeping their foreign exchange reserves in the form of Treasury bonds. This makes it possible to display a chronically deficit trade balance without the dollar sinking. This is the famous “exorbitant privilege” without which inflation would be much higher across the Atlantic.
“There are a lot of inflationary forces ahead of us”, declared the CEO of JP Morgan during an interview with Bloomberg. In question, the costs linked to energy transition, remilitarization, infrastructure spending, trade wars, without forgetting the budget deficit.
“I think the chances of inflation remaining high or rates rising are greater than people think”, did he declare. Jamie Dimon had already made similar comments in his annual letter to shareholders, declaring that he was preparing for interest rates ranging from 2% to 8%, ” see more “…
For the banker, geopolitical risk is crucial given its impact on oil and gas prices, trade and the game of alliances. With the war in Ukraine, the situation in the Middle East and the use of nuclear blackmail, the geopolitical situation is “very tense”he warns.
The worst-case scenario would be an oil embargo in response to Israeli abuses in Palestine. A drastic reduction in Sino-American trade would also be very inflationary.
Knowing that inflation is already such that it is rumored that central bankers will raise their inflation target in the years to come. This is what was suggested Christine Lagarde during an interview with the Council of Foreign Relations.
Bitcoin Insurance
Prices will never fall and the value of the dollar will continue to evaporate. To convince yourself, see below the extent of the financial promises (especially retirement pensions) which will require new loans (unfunded liabilities):
The new generations would do well to choose their investments wisely since they will not have a pension… And let's not talk about peak oil which will make things even worse…
[Notre article à ce propos : Bitcoin et l’Inflation sans fin]
On a national scale, it is only a matter of time before some refuse tickets from hostile neighbors. Why would Beijing agree to place its reserves in the debt of the United States if it obtains ever higher customs duties in return?
All major developed countries accumulated as much physical gold as possible during and after World War II. It is no coincidence that China and countries defiant of the Pax Americana are increasing their gold reserves.
Gold today represents 5% of Chinese reserves and 20% in the case of Russia. Unfortunately, Barbarian Relic is not a payment network like the SWIFT network. Even in the days of the Gold Standard, it was actually the dollar that circulated.
The world needs a store of value that is at the same time an international payment network. This is precisely what Bitcoin is. It is also a much better store of value since it exists in absolutely finite quantity. Nearly 94% of bitcoins are already in circulation. As for gold…
Unfortunately, China still perceives bitcoin as a threat to its capital controls. But if the Chinese want to trade on equal terms with the West, we will have to make a gesture in that direction. The anathema on bitcoin will then no longer have any meaning.
Stateless and uncensorable, Bitcoin would allow exchanges on an equal footing. It is designed to become an essential link in international trade.
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