In the second quarter, foreign investors sold more than $ 500 billion worth of US bonds.
From the moment China joined the World Trade Association, it (China) began to influence American currency’s growth and the decline in the yield of American treasuries. Twenty years have passed since then, and during this time, China’s share of the world’s total liquidity has grown from 6% to 25% from $ 140 trillion.
This is because trade is actively conducted with the Celestial Empire, and settlements are carried out in dollars. Also, monetary policy in the US currency is performed inside the country to stimulate the economy, and this requires a considerable amount of the dollar.
Recently, the Chinese government wants to get as far away from the influence of the American currency as possible. This is primarily to increase its impact in the world, and for this, you do not need to sit on a dollar needle. The first displacement of the dollar from the country occurred in 2015-2016, then the state policy focused on the outflow of capital led to the growth of the dollar and the fall of American securities.
However, it would help if you did not think that this will always be so, because any increase in the yield of debt securities will lead to a loss in the value of the dollar, which other markets, for example, in Europe, can always use.
To completely abandon the dollar, the Chinese need to take care of creating demand for the yuan in the world. To do this, you need to expand investors’ access to their bonds, develop domestic financial markets, and develop trade credit markets in RMB. This can be prevented by private institutions that do not undertake to take currency risks.
But even a partial abandonment of the dollar could trigger a rise in the euro because the ECB policy will expand the balance to comply with the program in the fight against COVID-19, and plans to issue Eurobonds worth € 750 billion can attract Chinese capital to Europe.