Coronavirus sparks US dollar dilemma for China as Federal Reserve ramps up easing

China is the world’s second largest holder of US government debt, with about US$1.1 trillion worth of US Treasury bonds in its foreign reserves

As the US Federal Reserve scales up monetary easing, pushing down bond yields, some analysts have asked whether Beijing should sell its US Treasury holdings

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China has about US$1.1 trillion worth of US Treasury bonds in its foreign reserves. Photo: EPA-EFE

Published: 7:45pm, 26 Mar 2020Updated: 9:37pm, 26 Mar 2020

To sell or not to sell? That is the question for Beijing as it looks at its United States Treasury holdings.

Analysts say China, which is hoarding about US$1.1 trillion worth of US government bonds in its foreign reserves, is facing a dilemma of whether to cut its exposure to the Treasury securities as the US Federal Reserve loosens its monetary policy at an unprecedented level.

For now, a global sell-off of stocks and commodities over coronavirus fears has seen investors scramble for the stability offered by the US dollar, pushing up its value.

In the long run, however, the decision by the US central bank to slash rates and boost purchases of securities has undermined the US dollar’s role as an anchor currency and lowered yields on US government bonds. Yields of one-month and three-month Treasury bills dropped below zero this week.

The Chinese government has so far been mute over the value of the US dollar and the Federal Reserve policy. When the US central bank embarked on quantitative easing during the global financial crisis in 2008, China’s then-premier Wen Jiabao said in March 2009 that he was “worried” about the safety of Chinese investments in US treasuries and urged the Federal Reserve to ensure the “safety” of Chinese investments.