China adds gold holdings for 10th straight month

Fri Sep 08 2023

China's central bank has continued its gold acquisition streak for the 10th consecutive month as a part of its de-dollarization efforts. In August, the People's Bank of China increased its gold holdings by 29 tons to 2,165 tons, as reported by Bloomberg. Over the past ten months, it has accumulated approximately 217 tons of the precious metal.

Additionally, in June, the Asian nation reduced its holdings of the U.S. Treasuries to their lowest level in 14 years. It cut exposure to U.S. government debt by $103 billion or 11 percent. It marked the third consecutive month of Treasury sales by China, leading to the country's lowest total holdings since May 2009, according to South China Morning Post.

Analysts say Beijing's effort has affected bond prices. In 2023, bond prices plummeted, with two-year yields surging by 169 basis points and 10-year yields spiking by 127 points. Experts suggest that China is likely to reduce its U.S. debt holdings further.

Other de-dollarization efforts

China is not alone in increasing its gold reserves. A World Gold Council (WGC) report in May indicates that 62 percent of central banks anticipate that gold will comprise a larger portion of their reserves in the coming five years.

In recent years, China and other nations have intensified their efforts to diminish U.S. dollar dependency on global trade and investments. This shift is significant because the U.S. used the power of the dollar to impose sanctions on countries like Russia and Iran.

TS Lombard senior global macro strategist Skylar Montgomery said last month that the dollar's currency reserve status is a privilege that grants the U.S. substantial political, economic and market influence.

"That weaponization of the dollar is part of the reason why Russia, China, and other BRICS nations have vied for an alternative to the dollar," said Montgomery.

For instance, as Western banks reduce their exposure to Russia, Chinese lenders rapidly increase their support. Renminbi-backed loans to Russian financial institutions have surged, more than quadrupling since Moscow's invasion of Ukraine in February last year.

According to the Financial Times, China's "Big Four'" banks expanded their collective exposure to Russia, raising it from $2.2 billion to $9.7 billion over the 14-month period ending in March 2023.

The growing renminbi adoption in the Russian banking sector aligns with the Bank of Russia's ongoing strategy to diversify its reserves. One of them is by incorporating alternatives to the U.S. dollar.

"The loans by Chinese banks to Russian banks and credit institutions, which are for the most part a case of the yuan taking the place of dollars and euros, show the sanctions are doing their job," Kyiv School of Economics deputy development director Andrii Onopriienko said.

In addition, BRICS nations — Brazil, Russia, China, India and South Africa — are reportedly considering establishing a shared currency. It was meant to contest the dominance of the U.S. dollar.

However, the success of the de-dollarization movement remains uncertain, as the U.S. dollar's share in global payments reached a new peak. Bloomberg reported that SWIFT payments in the U.S. dollar surged to an all-time high of 46 percent in July.

Some market experts show skepticism to de-dollarization initiatives. This includes former chief economist of Goldman Sachs, Jim O'Neil, who coined the term "BRICS," referring to the efforts as "embarrassing."

Source: https://atozmarkets.com