Is China dumping dollars? Expert answers

Speculation around China's potential "de-dollarization" strategy is intensifying. In a note Wednesday, Yardeni Research addressed the question of whether China is dumping US dollars, emphasizing the currency's historical resilience and current status.

The firm notes that since the Great Financial Crisis, the dollar has appreciated significantly, rising 28.7% over the past 15 years and 16.4% over the last five. Despite persistent speculation, foreigners' demand for US Treasury securities has remained steady. Yardeni Research suggests concerns about the dollar's decline are exaggerated.

Central to this discussion is China's recent increase in gold reserves. Gold now constitutes a record 5.2% of China's reported reserves, driven by a nine-fold price increase since China joined the World Trade Organization in 2001. However, Yardeni Research says China's gold purchases do not necessarily indicate a major shift away from US assets.

China's holdings of US Treasury bonds have declined from over $1.2 trillion in 2017 to $767 billion as of March. Despite this, Yardeni explains that China may be reallocating its US assets rather than selling them off entirely. Holdings in Belgium's Euroclear and potentially in Luxembourg's Clearstream or the UK suggest diversification rather than outright abandonment of US debt.

While China is buying gold, whether it is financing these purchases by selling US assets remains unclear. Yardeni Research concludes that there is no immediate paradigm shift for the dollar, given its enduring strength and continued global demand

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