U.S. dollar ends 2016 with three straight quarters of global reserve declines

Last week Rogue Money published an article predicting the outlook for the dollar in 2017 as remaining the singular global reserve currency.  Now we will see the numbers which validate that foreigners are bailing on that reserve in record numbers.

Through October of 2016, more U.S. dollar reserves (Treasuries) were sold than bought for the 12 months going back to the same month in 2015, with an unprecedented three quarters in a row now, or seven total months that do not include November and December yet, showing a decline.

Net “acquisitions” of Treasury bonds & notes by “private” investors amounted to a negative $18.3 billion in October, according to the TIC data. In other words, “private” foreign investors sold $18.3 billion more than they bought. And “official” foreign investors, which include central banks, dumped a net $45.3 billion in Treasury bonds and notes. Combined, they unloaded $63.5 billion in October.

In September, these foreign entities had already dumped a record $76.6 billion. They have now dumped Treasury paper for seven months in a row. Over the past 12 months through October, they unloaded $318.2 billion:

— Wolfstreet
Graphic courtesy of Wolfstreet.com
Graphic courtesy of Wolfstreet.com

The decline in nation’s wanting to hold dollars is two-fold… with economic uncertainty being the primary cause for some selling their dollars to bolster their own currencies.  And as more and more countries find opportunities to move away from reliance on the dollar because of the rise of bi-lateral trade, others are exchanging their dollar reserves for currencies like the Renminbi, which in 2016 crossed a critical mass point where they now have over 100 economies trading directly with them and without the need for a reserve medium of exchange.

The latest renminbi (RMB) Tracker figures from SWIFT show the Chinese currency crossing a number of significant milestones.

There are now 101 countries using RMB for payments and the fact that seven new countries – Bolivia, Colombia, Mozambique, Namibia, Kuwait, Georgia and Spain – have “crossed the river” and use it for more than 10% of their direct payments with China and Hong Kong, in comparison with other currencies, reflects the currency’s rising importance in global trade.

The 10% milestone is known as ‘crossing the river’.

According to Vina Cheung, global head of RMB internationalisation at HSBC Asia-Pacific’s liquidity and cash management unit: “More and more countries are ‘crossing the river’ and making use of the renminbi for a meaningful share of their payments.”

“The latest SWIFT data shows the Chinese currency continuing to gain critical mass in global payments. Its inclusion in the International Monetary Fund’s (IMF) Special Drawing Right basket earlier this month confirms the renminbi’s emergence as a global currency,” she added. “This will be another catalyst for its growing use in trade and investment with China.”

— GTNews

Over the past few months the dollar has strengthen primarily because the Fed has mopped up hundreds of billions of dollars worth of dumped Treasury Bonds without these dollar based instruments actually reaching the open market.  This has given the illusion of a smaller monetary base, and that naturally leads to a stronger currency.  However, if the trends of the second half of 2016 continue into the new year, or increase sharply as more and more countries rush to the door to get rid of their dollars before they become even more devalued, then the U.S. economy is in for a major shakeup since the only thing propping up the power of American hegemony is their right and force of will in being the singular controller over the medium of exchange for the global financial system.

3 comments

  1. US Government debt has increased by $1.8 trillion since the 1st October 2015. Who on earth other than the Federal Reserve or Exchange Stabilisation Fund has been sopping up this massive amount of debt?

  2. You are missing what is really going on. The dollar is too strong in foreign markets. The FED and the world needs a weaker dollar and the FED has asked central banks to flood the system with dollars hence the selling of treasuries for dollars and the selling of dollars. They want to help US exporters especially commodity exporters as these are too expensive in foreign markets with demand falling then price. Also they want to help banks who have lent over $9 trillion in dollar denominated loans to foreign entities and these can’t be serviced with a strong dollar. Even China is finding US commodities too expensive. There is other global forces working against a weaker dollar. The policies of both the ECB and the Bank of Japan are causing huge international capital flows flooding into the dollar and the Dow. Entities in Europe have been pulling capital from banks causing liquidity problems. If you control large amounts of capital you are not going to park it in most EU banks. Then you have entities in other countries who have been exchanging their currencies for dollars causing additional dollar strength. Countries like India, Turkey and Venezuela. This has caused a dollar shortage outside the US.
    The UK needs a weaker pound so their exports will stay competitive especially to the EU. London is the currency trading capital of the planet having twice the volume of the New York. Currency traders there have been monkey hammering the EUR/USD and GBP/USD crosses and driving up the USD/JPY cross and when London closes NY has been creating dollar weakness with London at it again the next day. As this involves 4 of the 5 world’s reserve currencies the daily volume has been in the trillions. This has taken place for months leading up to the holidays with London taking a break for now.
    50% of all trade settlement is in dollars and 75% of all financial transactions are in dollars. This demand in foreign markets is also causing additional dollar strength. Almost every country on the planet exports to the US and this causes a demand for treasuries and dollars so as soon as they sell they buy more.
    This is simply about international capital flows. Follow the money!

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