
Beijing's US Treasury holdings dip - hhs
https://asia.nikkei.com/Economy/Trade-war/China-sells-dollars-and-buys-gold-as-tensions-rise
======
conjecTech
This is a misrepresentation which is trying to paint a relatively weak
position as a stronger one. A small fraction of that money is being spent on
gold. According the financial times[1], China only bought 15.6 tonnes - about
$675 million worth[2], compared to the dollar deficit of ~$7.5 billion.

China has a trade surplus with the US, but is net losing dollars because it
has to use dollars to buy oil and other imported goods as very little
international trade is transacted in yuan. They aren't choosing to shift away
from the US dollar. They need them and are going through their stockpile.

[1][https://www.ft.com/content/ca50aa10-8b18-11e9-a1c1-51bf8f989...](https://www.ft.com/content/ca50aa10-8b18-11e9-a1c1-51bf8f989972)
[2][https://www.wolframalpha.com/input/?i=value+of+15.6+tonnes+o...](https://www.wolframalpha.com/input/?i=value+of+15.6+tonnes+of+gold)

~~~
treis
>China has a trade surplus with the US, but is net losing dollars because it
has to use dollars to buy oil and other imported goods as very little
international trade is transacted in yuan

China is a net exporter to the tune of half a trillion per year. I don't see
how they could be running out of dollars. Your first link is behind a paywall
so I'm not sure what stats they use to back that up.

~~~
conjecTech
I believe the missing factor is investment. You're likely referencing numbers
just for trade. There is also foreign investment to consider. I believe China
has been a large net investor for some time and those investments, by their
foreign nature, reduce China's foreign reserves as well.

~~~
treis
Sure, it's possible they have a net negative dollar flow because of
investments. But that's a lot different than having a net negative dollar flow
because they're importing oil.

~~~
conjecTech
There is some nuance here. We can talk about all of their net flows as if
they're denominated in a given currency, but this article is specifically
talking about their reserves of a particular currency, and oil is a very large
reason for the continued depletion of their dollar reserves, independent of
their overall account balance when all of it is converted to dollars. I don't
have a good knowledge of what their other currency reserves are, or the
feasibility/implications of converting such massive dollar figures between
currencies. If you want to provide some more details about the particular
figure you mentioned, we might be able to discuss it more meaningfully.

~~~
treis
This cite has them at 873B of net exports with about 200B in petroleum imports
in 2017:

[https://atlas.media.mit.edu/en/profile/country/chn/](https://atlas.media.mit.edu/en/profile/country/chn/)

The net exports decreased to about 500B for 2018. I can't seem to find a
dollar figure for 2018 oil but I've seen articles saying imports are up 10% by
volume. So total petroleum imports are less than half of their net export
amount. Meaning that they could triple their petroleum imports and still be a
net exporter.

~~~
conjecTech
Yeah, hard to tell just looking at that data. I don't know what currencies
each one of the trade relationships is settled in. The differences in balance
with the US there is also similar to what they spend on oil (~11%). If all
other trade is settled in other currencies and all oil is bought with
dollars(from countries other than the US), they would be about flat in terms
of dollar reserve growth from trade. My understanding is that most of their
dollar reserves originated from buying dollars w/ yuan in the years after 2009
to help keep the value of the yuan depressed for the sake of trade
competitiveness. So that does seem to imply that investment balance is the
factor tipping the balance here. Which is probably why the Chinese government
has set stringent rules on currency controls for individuals.

~~~
treis
Which currency the trades are settled in is effectively meaningless as long as
it's hard currency. If they end up with a surplus of Euros and a deficit of
Dollars they can easily exchange Euros for Dollars. If they end up with fewer
dollars it's mostly by choice.

~~~
conjecTech
We're talking about hundreds of billions of dollars here. How confident are
you that you could 'easily' do that without major undesired effects?

~~~
treis
This cite says the average daily volume of EUR/USD trades is half a trillion a
day:

[https://www.currenciesfx.com/index.php/eur-
usd](https://www.currenciesfx.com/index.php/eur-usd)

So hundreds of billions of dollars a year is small relative to the volumes
being traded.

~~~
conjecTech
Very little of that is true demand. That corresponds to 10x American GDP
annualized.

------
bensonn
From "Currency Wars: The Making of the Next Global Crisis", which I read too
many years ago to clearly remember, this was a economic war strategy. During
economic war-games the Pentagon set up this strategy was successfully
employed.

China, Russia- the "anti-west" powers started buying gold, dumping US debt and
finally proposed creating their own currency for regional trade instead of
using the USD as their reserve currency.

This is a summary based on a book I can't really remember and concepts I might
not have understood. That said, I do remember it was a good book, worth a
read.

~~~
0815test
This is not much of an "economic war" strategy, TBH - it's just a very visible
_signal_ of the "hey, we hate the U.S." sort. The "reserve currency" one uses
as part of world trade is immaterial, except for convenience; the U.S. are not
perceptibly better or worse off as a result of such choices.

Tariffs and trade barriers though? Now, there's some "economic war" if I've
ever seen it! "When goods won't cross borders... armies will."

~~~
jddj
In most of the analyses I've read, the petrodollar has been of huge benefit to
the US - effectively propping it up in the face of massive QE efforts and (in
theory) allowing much more to be printed to service debts than would otherwise
be sustainable.

I mean, there must be some reason that trading or threatening to trade oil in
Euros is practically asking for some kind of forced regime change.

~~~
treis
>In most of the analyses I've read, the petrodollar has been of huge benefit
to the US - effectively propping it up in the face of massive QE efforts and
(in theory) allowing much more to be printed to service debts than would
otherwise be sustainable.

It's not as simplistic as good or bad for the country. If have a good job and
you want to buy a lot of imports then it's good. If you want to be a factory
worker it's bad because what you make is more expensive for other companies to
buy.

~~~
jddj
Sure, a weak currency is better for basic exports. It's widely accepted that
Germany prefers a weaker euro to a stronger mark.

We can look at the US's behaviour, though, to determine whether they think
it's valuable to them or not. It's had every year since the petrodollar was
established post WW2 to push the world towards using the Euro and instead has
fiercely defended it.

~~~
treis
> they think it's valuable to them

"They" in this case are the elected politicians that are in the "good jobs
that buy imports" category and/or dependent on that category for political
support.

------
smaili
> Some of this capital is going into gold. China's gold reserves have grown
> for six straight months since December, the first time the country increased
> its holdings of the precious metal in more than two years. Russia has made
> similar moves, slashing its dollar-denominated assets while purchasing gold
> as essentially a borderless currency.

I know it's crazy but I have to ask - with countries seeking more neutral
currencies, could it be fathomable that adoption of digital currencies would
grow as well?

~~~
melan13
Swiss Franc is the primary alternative. I don't see digital currencies going
farther away than being used in the dark market/crypto-trading.

~~~
dageshi
It is, but it's too small for china.

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yeldarb
This doesn't seem particularly newsworthy. It's such a tiny blip that it's
immaterial.

The RMB & USD have traded in a very tight range throughout 2019.

~~~
ChuckMcM
Really it is about the trend. China couldn't just dump their treasuries (as
explained in the article) as they would lose a lot of value that way. So
dribbling them out and exchanging them for gold maximizes the value returned.
At $20B/month that is a pretty steady pace of a quarter trillion a year.

EDIT: A quarter trillion not billion dollars, thanks.

~~~
nvusuvu
I think you might have meant a quarter trillion.

~~~
ChuckMcM
So true, just 3 decimal orders of magnitude :-). And it would eliminate their
holdings in 5 years if they were to stick to it.

------
dnprock
China is in a delicate position. They're fighting trade war from weaker
position. Their diversification to gold makes sense. They probably know that
they don't have the power to "sink" the dollar. If they need the dollar in the
future, they can still sell their gold and purchase US treasury again.

I think they are testing out strategies. Gold is an alternative. The US and
its European allies still control most of the gold reserve. Western countries
have an upper hand if currency war moves to gold.

Some Asian countries are voicing support for gold backed currency. But they
together don't have substantial gold reserve. I think China is waiting for a
break of European countries to gold. That would be a real opening for them in
this battle.

There's also bitcoin. China doesn't like it because the system is
decentralized and supply is limited. They can't easily take control of the
market. But the US also face similar issues. That would make an unpredictable
battle field. For now, it seems China is treading slowly with gold.

~~~
dageshi
The only thing that really matters is the relative percentages of what
currency is used in international trade. If you need to buy stuff from outside
your country and they want to be paid in USD then you need USD to pay them.
The RMB isn't really that useful outside of China, I don't honestly see gold
being the substitute because there just isn't enough of it, any gold backed
currency would end up deflationary and people would hoarde it for the sake of
hoarding it.

~~~
dnprock
Gold backed currency doesn't have to be 1-1 with gold. You can use fractional
reserve to issue more currencies. Or you issue bond to borrow. Given you keep
your promise to pay debt and allow people to redeem currency using gold.
People will trust you as long as you keep your promise and have enough gold
reserve.

I personally think having the ability to hoard gold is good. I can decide that
for myself. It's easier to understand than the voodoo economics of money
printing. It's the fallback to keep accountability.

~~~
wrong_variable
Gold would be extremely deflationary.

It is what made the great depression worse.

If the Fed didn't "print money" as QE1, QE2, QE3 then you would have 25%
unemployment in the US alone.

Having half of society unemployed just so that you can "hoard gold" would lead
that half of society taking up guns to take it away from you.

Be careful what you wish for.

~~~
dnprock
The problem with QE is you will have QEn. Everyone will do QE on their
economies. We don't have any accountability. During the 2008 crisis, we were
told this is the right thing to do. And we keep doing it.

We're not at the stage where half of the society is unemployed and hoarding
gold. We're at the stage where everyone is doing QE on their economies.

Having full employment for the sake of full employment is dumb. That's the
same as communism.

~~~
dageshi
The goldbugs all said the fed and its helicopter money would have lead to
hyperinflation at this point. Well every major central bank in the world did
QE and it didn't happen, inflation barely cracked 5% if I recall? And quickly
retreated from there.

~~~
dnprock
The QE technique is interesting and new. They write up the money on Fed book
as liability without pumping printed money into the economy. I think it's
recently possible because our money is mostly digital now. You can look at US
national debt clock. It's there.

I think inflation is shifted into debt on Fed book. Between having some
inflation and blowing up the debt, I think having some inflation is better
now. You don't want to load up all your risks in a central book. But our
political class doesn't want this. They want to keep loading up debt. We'll
then have a QE race between nations. Maybe, at some point, we come to love
each other and burn our debt on each other books. JK, that'll never happen :)

~~~
chantelles
Not all nations to QE - quantitative easing, some to QE- qualitative easing:
[https://blogs.wsj.com/chinarealtime/2014/08/11/how-chinas-
tr...](https://blogs.wsj.com/chinarealtime/2014/08/11/how-chinas-trying-to-
boost-its-economy-qualitative-easing/)

------
mywittyname
The US President is looking to the Federal Reserve to interest lower rates. By
reducing their T-Bond holdings and curbing future purchases, China is
increasing the volume of T-Bonds the Federal Reserve must purchase in order to
achieve the US President's wishes of lower interest rates.

It seems like a good move, seeing as the President's base has a negative
opinion of national debt and government interference.

~~~
HansLandaa
Massive selling pressure would push bond yields up. Fixed income security
prices and yields have an inverse relationship

~~~
mywittyname
Right, which means that the Fed will have to buy even more to push rates down.

------
xmly
This is really weird. You buy something and sell something. This is entirely
up to customers. Why make it so big deal? It is the customers' freedom to do
so.

So respect the customers' choice, respect other countries' choice. They want
to sell, let them sell.

~~~
BubRoss
This is a report of publicly released numbers, it isn't a judgement. No one is
trying to stop anyone.

~~~
xmly
I saw people here discuss about WAR.

~~~
BubRoss
You should have replied to them, since this is just reporting what China's
official information is. China and Russia have been buying gold for many years
now.

------
chocolatefor3
Another discussion on current state of China (was on the homepage, but got
flagged right away)

[https://news.ycombinator.com/item?id=20215382](https://news.ycombinator.com/item?id=20215382)

------
w23j
Selling large amounts of dollars to buy gold should devalue the dollar against
other currencies, right?

Isn't that what Trump wants to happen anyway? (Looking at his attacks against
the fed [1], for not dropping rates or attacking the ecb for planning to do so
and thus devaluing the euro:

 _Mario Draghi just announced more stimulus could come, which immediately
dropped the Euro against the Dollar, making it unfairly easier for them to
compete against the USA. They have been getting away with this for years,
along with China and others._ [2]

[1] [https://www.bloomberg.com/news/articles/2019-06-18/white-
hou...](https://www.bloomberg.com/news/articles/2019-06-18/white-house-
explored-legality-of-demoting-fed-chairman-powell?srnd=premium) [2]
[https://twitter.com/realDonaldTrump/status/11409356202919649...](https://twitter.com/realDonaldTrump/status/1140935620291964928))

Why is this a good move in the trade war then? What am I missing?

~~~
astazangasta
This was my first thought, but I'm not sure this is true. Buying debt from the
US government increases the numbers of dollars in circulation (since bonds are
redeemed in dollars) and shores up its price. Selling this debt to someone
else (i.e., not back to the US government) doesn't destroy those dollars, it
just changes its owner. It's not clear this would result in devaluation.

~~~
w23j
> increases the numbers of dollars in circulation (since bonds are redeemed in
> dollars)

But following supply and demand principles, increasing the number of dollars
in circulation should lead to inflation/devaluing of the dollar, right?

~~~
astazangasta
You are right, my initial assumptions are wrong - China isn't buying bonds
from the US Treasury (as I would), they are buying them from a forex bond
market, where we might consider the supply of dollars to be like any other
commodity. This means when they buy up bonds they are decreasing supply,
therefore driving up the price, and when they sell off bonds, they are
increasing the supply of dollars, causing the price to fall.

------
SubiculumCode
Maybe I am just ignorant, but I do not see the appeal of gold.

"Gold. How archaic." is what I immediately think. So many other commodities
will hold value, even in the worst of times, being either useful or desired,
and have long shelf lives.

~~~
bluntfang
Real question...what is useful about gold today that makes it valuable, other
than it's scarcity?

~~~
throwayEngineer
It's scare.

Yes.

It's a rock trading card that people have been trading for thousands of years.

The industrial uses exist, but it's a vehicle of Economic exchange.

This is why I find Bitcoin useful. It's nuclear chemistry proof.

~~~
SubiculumCode
Let us say that there was a nuclear war, and everyone left is near starvation,
lacks resources and security. What holds value? Gold? I'd say useful or
desired commodities: Food, fuel, guns, working machines, liquor, tobacco.
Perhaps gold will be settled on as the most fungible (and transportable)
material for trade, but if I were preparing for such times, I would be betting
on the commodity, not an inert bit of metal.

~~~
Nasrudith
Of course those commodities are pretty terrible currencies in non-destabilized
to a dark age times.

------
hsnewman
China owns a considerable amount of American debt. If they sell it off, the
result could be a major drop in the US dollar. Combining this with tariffs we
could see Russia in the 1980s style shortages (ie: nothing on the shelves).
Countries which have been blockaded (ie: Cuba, Iran, Venezuela, etc) always
have their economy drop. Doing it to ourselves is, in my opinion, self
injurious.

~~~
nradov
Who exactly would China sell that debt to, and for what? How would that impact
the US dollar? They certainly aren't going to cut off exports to the US.

~~~
jfengel
They can "sell" a lot of it back to the US government. The debt is held in
bonds that mature. Big bondholders regularly roll their bonds over, so it acts
as if they're just holding the same debt indefinitely. But some fraction of
their bonds mature every month, and if they don't buy new ones, the government
has to give them their money.

It doesn't directly impact the dollar, per se, but it does mean that the
government has to find the money elsewhere to continue operations. If it has
to look harder, it will have to spend more, and that ultimately has to be
backed by the taxpayer.

~~~
nradov
That's really not how US bond sales work in practice. The Chinese government
is a relatively small player. And you didn't account for FOMC operations.

