I was reading this: http://www.macrobusiness.com.au/2016/12/china-dumps-us-debt-record-pace/ US hikes > USD up > CNY dumps > China sells US debt > US hikes 2 questions: Wouldn't China's USD reserves increase by selling US debt - since its sold in USD? The article says it is decreasing How does the CNY appreciate from selling US debt? I want to understand that relationship. Thanks!
Maybe China knows the U.S dollar is terminal as a global currency and is selling while there is still some perceived strength left in it. Selling Gov't bonds, notes and bills for fiat actually releases the long term risk and allows them to convert the debt into cash which can then be used to buy more Bullion or be moved elsewhere. http://www.japantimes.co.jp/opinion...mentary/brics-falls-chinas-sway/#.WFZq3X2m3R4
China holds about 7% of the debt and US government and citizens own about 63%, 30% is owned by various banks and other foreign governments. So since American hold 63% they own America
The USD debt can only be repaid in USD, so the strength in demand is there always, until no-body wants it for trade settlements. for China reserved, they just convert their long term bonds into shorter terms, and let it mature and collect cash and spend it or lend it to someone else. when the central bank intervene in the forex market, it sell USD = buying CNY the scale of one country selling is relatively small compared to the world buying of USD, so end result CNY is depreciating relative to USD, as USD appreciate more
O.k. I will give it a shot.... Raising interest rates will have the effect of lowering the value of the issued bonds. That is a good reason to get rid of them. The Chinese need the USD to prop up their own currency due to enormous capital outflows. Outflows are a function of confidence in part. Devaluation of the yuan of late has created uncertainty. This uncertainty has led to many in China to invest overseas to protect their capital. This shift in capital adds further downward pressure to the currency. The government, however, is selling their foreign reserves to buy CNY as it puts a floor under their own currency....for a little while at least. You are right, the Chinese USD reserves would increase when they sell the bonds. The appreciation of the CNY is a function of selling the US dollar reserves, not the bonds themselves. I think that is close. I am sure WRCMAD will be able to apply a little finesse to my points if required.
