China is Dumping Dollars for More Gold

China questions safety of greenback, and keeps buying gold!

“Chinese regulators have advised financial institutions to rein in their holdings of US Treasuries, citing concerns over concentration risks and market volatility,” reports Bloomberg News.

“Officials urged banks to limit purchases of US government bonds and instructed those with high exposure to pare down their positions.”

While they aren’t the only nation currently hedging the dollar with more gold, China’s banks are reported to hold about $298 billion worth of US dollar-denominated bonds.

But a much bigger player in dollar holdings is the central bank itself.   The People’s Bank of China’s holding of US Treasuries is in a state of collapse, having fallen by almost half since 2013.   From a peak of $1.316 trillion then, China today holds only $682.6 billion.  

That is a precipitous decline, considering that the US is the world’s largest debtor.  As the national debt, now $39 trillion, continues its breakneck climb, Washington desperately needs more creditors to buy its bonds, not fewer.  Yet the new advice to its financial institutions is a leading indicator that China’s dollar holdings will continue to fall.

According to the Congressional Budget Office, the current trajectory of U.S. borrowing, which is running at double the 50-year historical average, is simply mathematically unsustainable.  The following chart depicts the national debt to spiraling up sharply, reaching $64 trillion over the next 10 years.

The world’s de-dollarization trend has ominous implications.  When you wish to borrow money, you must make rational decisions about y0ur ability to pay.  But that is not the case with the government.  It cannot be depended on to make rational choices because borrowing becomes existential: it will spend whatever it wishes, or it is game over.  It will print dollars in any amount to pay its bills regardless of the consequences.

In any amount.  That is why wary nations and informed people buy gold.