China, which previously dumped US Treasuries diversifying its Central Bank reserves is now buying the dollars at a record pace. According to the data from the Financial Times, China bought more than $100 billion in foreign exchange in December alone. However, January purchases were slightly smaller and came close to the previous month’s accumulation at $70 billion.
In total, China has bought $170 billion worth of US Treasuries in the last two months. This is a complete U-turn from China which offloaded US dollar-denominated Treasuries relentlessly since 2022. However, the dollars are not being housed in the People’s Bank of China’s (PBOC) reserves. It is being warehoused in the country’s big State-owned financial institutions.
The purchase is a huge market-moving number and is now in the lap of State-owned financial institutions in China. The development shows that the country’s massive trade surplus moves through the balance sheet of its core state financial institutions. It is not known why China has returned to buying US dollar-denominated Treasuries. The Xi Jinping administration had held a tight grip on the USD since 2010, limiting its usage.
Also Read: Why China Can’t Replace the US Dollar Despite Big Ambitions
China Turns To US Dollar-Denominated Treasuries
China’s State-owned commercial banks currently hold around $1.65 trillion in disclosed foreign assets, including the US dollar-denominated Treasuries. They also include the Chinese yuan-denominated loans, but the bulk of the foreign assets are in dollars. However, commentators claim that the numbers could be higher and the Xi Jinping administration is underreporting the holdings.
Russia and China were leading the offloads of the US dollar-denominated Treasuries. They are now seeking the assets to boost their economy and businesses. The Putin administration is also seeking to return to US dollar payments in a new trade deal with Trump. The deal is yet to be formalized and is still under discussion by higher officials across the board.
