In a sign of growing distrust in the US dollar and its debt, some of the world’s largest economies have been dumping their holdings of US Treasury securities. According to the latest data from the US Treasury Department, China, Brazil and Saudi Arabia reduced their ownership of US government bonds by a combined $17.4 billion in July 2023. China, the second-largest foreign holder of US debt, slashed its holdings by $13.6 billion, from $835.4 billion in June to $821.8 billion in July. Brazil, a founding member of the BRICS economic alliance, cut its holdings by $2.7 billion, from $227.4 billion to $224.7 billion. Saudi Arabia, a newcomer to the BRICS group, trimmed its holdings by $1.1 billion, from $108.1 billion to $109.2 billion.
These three countries are not alone in their move to reduce their exposure to US debt. India, another BRICS member, saw its treasury holdings shrink by $2.3 billion in July, from $235.4 billion to $233.1 billion. The United Arab Emirates, also a new BRICS member, reduced its holdings by $300 million, from $65.2 billion to $64.9 billion.
Why Are They Selling US Treasuries?
There are several possible reasons why these countries are selling US treasuries at a time when the US economy is facing high inflation and rising interest rates. One reason is that they are diversifying their foreign exchange reserves into other assets, such as gold, cryptocurrencies or other currencies. Another reason is that they are defending their own currencies against the appreciation of the US dollar, which makes their exports less competitive and increases their import costs. A third reason is that they are anticipating a further decline in the value of US treasuries as the Federal Reserve tightens its monetary policy and reduces its bond-buying program.
The sell-off of US treasuries by these countries has significant implications for the global financial system and the balance of power between the US and its rivals. By reducing their demand for US debt, these countries are putting upward pressure on US bond yields, which increases the borrowing costs for the US government and other borrowers. This could hamper the US economic recovery and fiscal stimulus efforts, as well as weaken the US dollar’s role as the world’s reserve currency. On the other hand, by increasing their demand for other assets, these countries are boosting their economic resilience and independence from the US influence.
How Will This Affect the Global Economy?
The global economy is facing a number of challenges and uncertainties amid the ongoing COVID-19 pandemic and its variants, geopolitical tensions and environmental crises. The sell-off of US treasuries by some of the world’s largest economies adds another layer of complexity and risk to the global financial system and economic outlook.
On one hand, this could lead to higher volatility and instability in the global bond markets, as well as spillover effects on other asset classes and regions. On the other hand, this could also create opportunities for innovation and cooperation among emerging markets and developing countries, as well as alternative sources of financing and investment.
The future of the global economy will depend on how well these countries manage their economic policies and coordinate their actions with each other and with the rest of the world.