China Reduces US Dollar Reserves In February

It’s hard to tell how significant or durable an occurence this is, but it certainly deserves close attention. From Brad Setser’s fine blog, Follow the Money:

China Reduced Its Dollar Holdings in FebruaryPosted on Wednesday, April 15th, 2009
by bsetser

It is a good thing the US trade deficit has come down, because foreign demand for US financial assets–actually foreign demand for US assets other than short-term Treasury bills–has dried up.

Foreign investors bought $68 billion of T-bills in February. Russia alone (likely Russia’s central bank) bought close to $14 billion. Private investors–seemingly Japanese private investors–also bought $23.5b of longer-term Treasury notes. Otherwise, though, foreign investors didn’t buy much of anything. And Americans also didn’t buy many foreign assets.*

After Keith Bradsher’s New York Times article, though, all eyes are on China.

In February, China bought Treasuries. $4.64b by my count. It bought $5.61b of bills, while reducing its long-term Treasury holdings by $0.96 billion.

But China also reduced its US bank deposits by $17.24 billion.

Consequently, by my count, China’s total US holdings fell by $13 billion. Short-term claims fell by $11.3b, and long-term claims fell by $2b. The data on China’s short-term claims can be found here.

Is this the beginning of the end? Has China decided to stop buying US assets?

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Chris Sturr

Chris Sturr is co-editor of Dollars & Sense magazine.

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