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re: Beginning of the End of U.S. Dollar Hegemony
Posted on 7/18/14 at 10:05 am to The Sultan of Swine
Posted on 7/18/14 at 10:05 am to The Sultan of Swine
quote:
s the Bank of China still holding a ton of dollars?
There are two parts to Chinese dollar holdings.
China is very secretive regarding the composition of its FX reserves, which hit a record $3.99T (which goes to the weakening renminbi) at the end of the 2nd quarter. Back of the napkin has this as give or take ~60% USD, so we'll just say $2.4T. The other part is their Treasury holdings that you could technically consider to be dollars since they have to buy and are denominated in dollars, that are at $1.27T.
quote:
Do they have any known plans to start selling them off, if they haven't already
Well they had been in the 2000's for sheer diversification purposes, which makes absolute sense and they should have. Hell I'm pretty sure the Fed was advising them to do this at some point
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This post was edited on 7/18/14 at 10:14 am
Posted on 7/18/14 at 10:26 am to BennyAndTheInkJets
quote:
Don't pay attention to the political announcements and speeches at the IMF, follow the money and you will see exactly how countries really feel about the US. China needs the US 100x more than the US needs China right now, we are their anchor of financial stability. The couldn't control their currency how they do now if not for Treasuries and dollars. That will change with time, as does everything, but it won't be to extent or haste that dollar doomers will tell you.
I agree with all this. I laugh when people talk about China engaging in a "trade war" with the US.
On the other hand, the amount of dollars that could potentially enter circulation (and that are out of direct control of the Fed) does somewhat concern me. Aside from Chinese holdings, financial institutions in the US are holding more dollars in reserve than probably ever (I would say it's definitely true in nominal terms, probably true in real terms). I say this because a few years ago, the monetary base actually started to exceed M1, which had never happened before.
Maybe it's unlikely, but it seems possible that a shift in economic conditions could cause these reserve dollars to start entering the system around the same time.
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