Forex reserve safety concerns mean China ‘unlikely to massively sell US debt’
Market experts say it’s more important for PBOC to keep abundant reserves than to maintain a stable yuan rate against the US dollar
China has cut its United States government debt for five consecutive months, taking its Treasury holdings to the lowest level in more than six years and losing its title of the biggest foreign owner of US debt to Japan.
Analysts expect China to continue selling its dollar holdings but a mass sell-off may be unlikely as it is more important for China to keep ample firepower and maintain dollar reserves above the safety line to prevent a potential confidence crisis and safeguard economic stability.
Global central banks dumped a record US$403 billion US government debt in the twelve months to the end of October, according to latest numbers from the US Department of Treasury.
China alone sold US$41.3 billion in October, taking holdings down to US$1.12 trillion as of October, the lowest since July 2010. Japan regained its US debt crown, with US$1.13 trillion of US Treasuries.
“The surging US dollar is causing a headache for the People’s Bank of China,” Oanda Asia Pacific senior trader Stephen Innes said.