A new report came out on Dec. 15 from the U.S. Treasury Department showing the overall foreign holdings of U.S. Treasuries and dollar based reserve instruments. And for the month of October, nearly $150 billion was divested from global accounts, and marks the biggest dumping of dollars in any month of this year.
A combination of the acceptance and expansion of the Yuan currency, and the need for nations to protect their economies by dissolving their reserves are primarily to account for this dollar dumping. And it is expected that when we get to see November and December’s numbers by the Treasury Department, the selloff will be much greater as more options become available for nations to transact outside the reserve currency.
The movement away from the dollar appears to have begun. As recently as May 2013, the percentage of foreign exchange transactions conducted in dollars was 80% and the percentage of overseas reserves held in dollars was 60%. As countries sign more non dollar deals among themselves and diversify their reserves, these percentages will certainly fall.
As a result higher U.S. interest rates may attract demand for U.S. Treasuries as a reserve asset. – Smaulgld via Silver Doctors
And in an ironic course of events, the Federal Reserve did raise interest rates on Wednesday, perhaps for the sole reason of offering nations a little more carrot to keep them from dumping their dollar reserves at the rates they have been doing over the past four months.
Direct bi-lateral trade, coupled with a rapid decline into recessionary environments will keep most nations from changing course and buying more dollars to fuel their global transactions. And with the need for oil lessening because productivity is also in a massive free fall, it is much more likely that the flight away from the dollar will continue, and the U.S. central bank will need to offer much more incentive for nations to keep buying treasuries when their yields as of now are not worth the price.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.