Facing an imploding stock market and the potential for even more widespread economic chaos, the dictatorship ruling mainland China — the top foreign holder of U.S. Treasury bonds — is selling U.S. debt to prop up the Chinese yuan (renminbi), according to news reports. The move, which has long been anticipated by analysts, could have major implications for the American economy and especially the U.S. dollar — particularly if the pace of liquidation were to accelerate. As of now, confusion about the developments is running rampant.
Analysts have been warning of the sales since at least early last week. However, news that Beijing was cutting its holdings of U.S. treasuries was first reported in the establishment press on August 28 by Bloomberg, which cited unnamed “people familiar with the matter” as sources. “Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public,” the agency reported. “China has communicated with U.S. authorities about the sales, said another person.”
The value of the U.S. Treasury securities being liquidated by the Chinese regime was not immediately clear, and Bloomberg’s sources apparently did not reveal it. However, the news agency, citing an estimate by Societe Generale bank previously highlighted by ZeroHedge and others, reported that the Communist Party dictatorship’s central bank, known as the “People’s Bank of China,” had sold at least $106 billion of reserve assets. That includes U.S. treasuries. The move came after the Chinese regime, which attempts to strictly manage the value of its fiat currency, announced a devaluation of the yuan (RMB) as it struggled to contain the emerging crisis.
Chinese government selling of U.S. treasury bonds is “not a surprise, but possibly something which people haven’t fully priced in,” Owen Callan, a fixed-income strategist at Cantor Fitzgerald LP, was quoted as saying. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.” Whether that will happen or not is not yet clear, with speculation going both ways.