(MENAFN) China's holdings of US government bonds dropped to their lowest level since May 2009 in January due to a combination of the US Federal Reserve's tight monetary policy and escalating tensions between the two countries. According to data recently released by the US Department of the Treasury, China held USD859.4 billion of US Treasury securities in January, marking the sixth consecutive monthly decline.
The decline in investments in treasuries reflects Beijing's efforts to diversify its portfolio, reduce dependence on the US dollar, promote the broader international use of the Chinese yuan, and guard against the risk of sanctions, as reported by the South China Morning Post. China's holdings of US government bonds have fallen from $1 trillion in January 2022 to USD859.4 billion in January 2022.
The US Federal Reserve's tight monetary policy has contributed to China's decreasing holdings of US government bonds. In an effort to fight record inflation, the Fed raised interest rates by a total of 425 points in seven rate hikes last year. In mid-2022, inflation jumped to a 40-year high. On February 1, the Fed raised its benchmark interest rate by 25 basis points, which was less than December's hike of 50 basis points.
The decline in China's holdings of US government bonds is significant for the US economy, as China has been one of the largest foreign holders of US debt. However, the trend also reflects China's growing economic power and its efforts to reduce its reliance on the US dollar. As the world's second-largest economy, China's diversification of its portfolio and promotion of the yuan's international use could have implications for the global financial system. It remains to be seen how the relationship between China and the US will evolve and what impact this will have on financial markets and the broader economy.
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