The most obvious play in recent geopolitical/monetary history:
Safe [Chinese FX management] began to shift the composition of its dollar-denominated portfolio in 2017 and the pace picked up after Russia’s full-scale invasion of Ukraine in 2022. Even though Moscow had reduced its dollar-denominated reserves since annexing Crimea in 2014, Chinese officials saw how easily Russia’s overseas dollar assets were frozen — and worried that, in the event of a serious confrontation with the US, China’s much larger holdings could face a similar fate.
and, according to two scholars at Tsingua University quoted in the FT piece
...the freezing of Moscow’s overseas assets “is a stark reminder of the financial hegemony the US wields through the dollar-based international system”, and that “the lesson for China is clear”.
Background:
As overseas consumers spent trillions on the manufactured goods pouring out of China’s factories, the dollars that flowed the other way were often recycled into Treasuries — helping Washington to finance its budget deficit.
"Beijing’s heavy exposure to dollar assets is a legacy of its export-driven economic boom and decades-long trade surplus with the west."
And this:
Between January 2022 and December 2024, China cut its official Treasury holdings by more than 27 per cent to $759bn, US Treasury department data shows, far outpacing the 17 per cent decline between 2015 and 2022.
A slow de-dollarization (of FX reserves #946143 and #747181) but a de-dollarization nonetheless. Some of that has moved to owning agency bonds (Fannie/Freddie bonds) and to owning bonds via Euroclear/Clearstream so not quite moving away from the dollar but still a reduction in monetary confidence.
But officials with knowledge of Safe’s workings say the agency does not regard massive dumping as a sensible option, preferring a gradual transition from Treasuries to other short-term assets and gold over a period of years.
Also, this is more worrisome than any sort of covert Chinese decoupling from dollars:
Any aggressive selling of Treasuries could be quickly neutralised by the Fed, which has a full set of tools including emergency quantitative easing to stabilise prices and push yields back down.
i.e., Fed printing the difference. ugh.
As an aside: as if Europe didn't have enough financial and Ponzi- pension-related problems... (#968945)
The problem has always been where to go:
A familiar problem with China’s diversification attempts is that even significant asset classes such as Japanese, UK or German government bonds cannot match the vast liquidity of the Treasury market.
At the very end of the piece there's a short mention of gold, which forms a larger share of Chinese holdings than before (but still single-digit percentages). The orange elephant in the room is #bitcoin, which isn't mentioned. I dunno, man: all the roads lead here eventually. Welcome Chinese monetary expats.
If only there was a globally neutral asset, designed to increase in value forever and that had infinite liquidity to pile into, and that nobody could seize or prevent you from using.
Surely somebody is pitching them this, yes?
non-paywalled: https://archive.md/6C9Zs