As trade and political tensions escalate between China and the US, there are increasing calls in China to reduce dependence on the dollar.
Washington is threatening to impose secondary sanctions on Chinese financial institutions servicing people on the US sanctions list and considering delisting Chinese companies from US exchanges.
Meanwhile, China has been providing for the growth in demand for the American currency for many years, and financial wars are now disadvantageous to any country, experts say.
As Michael Howell, head of CrossBorder Capital research group writes in his column to the FT, foreign governments sold $500 billion worth of US government bonds in the second quarter, with China dropping a third of all securities.
Since its accession to the WTO, China has pushed up the demand for the dollar and thus reduced the cost of borrowing for the United States. At the moment, China remains the largest holder of US Treasury securities – more than $1 trillion.
However, we should not forget that as China abandons dollar financial instruments, demand for US currency will fall, and it will become more and more difficult for the US to finance its budget deficit.
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