Be Careful What You Read

January 19, 2020
FX Lingo: On the Backfoot
January 19, 2020
Fundamentals–Reserve Currency
February 10, 2020

Be Careful What You Read

[Post Date]      Barbara Rockefeller

“The US is losing the world’s confidence—foreign holdings of US dollars are falling!”

Well, no.

In mid-January 2020, the Treasury International Capital (“TICS”) report showed total foreign ownership of Treasuries fell $40.6 billion in November 2019 to $6.74 trillion. Japan recovered its lead over China with $1.16 trillion, down $7.2 billion, but China was down by more, $12.4 billion to $1.09 trillion.

First, consider that reserves can get mismeasured because the Treasury uses the mark-to-market orthodoxy. A 10-year note bought when yields were 1.431%, the 51-week low, has a lower price today because the yield is higher. The owner still has just as many notes, but they are priced lower.

Second, a drop by $40.6 billion represents a tiny fraction of the total. And the Nov 2019 total is still higher at $6.74 trillion than the total in Nov 2017, $6.20 trillion.

You can get lost for days in the report. We recommend you don’t bother. If you insist, it’s at

Here’s another one: “The dollar is doomed to devaluation and we know that because China and Russia are dumping dollars out of reserves in favor of gold.” Here is the scare-mongering chart, from a fringey newsletter:

Also no.

Let’s just discard any discussion of Russia. It just doesn’t count. For one thing, it produces gold itself and is certainly not disclosing its true holdings. For another, Russia is a failed state in many ways with a GDP about half of California’s.

But China counts. Tradingeconomics reports that China’s FX reserves rose by $12.3 billion to $3.108 trillion in Dec 2019, more than forecast but subject to meaningless mark-to-market changes just like the TICS report. The gold component of reserves rose to $95.406 billion at end-Dec from $91.469 billion at end-Nov.

The fringet newsletter asserts Bloomberg reported China’s gold reserves rose 84% since 2015, but we couldn’t find the Bloomberg story and the IMF and other sources are mum on the subject. We did find at the World Gold Council that China’s gold holding were 3.8% of total reserves a few years ago. Doing the arithmetic on the latest data, gold now constitutes 3.06% of total reserves. So, yes, China is buying more gold, but not disproportionately and actually at a lesser pace than it’s accumulating non-gold reserves. That 84% rise in China’s gold holdings reflects the one-time jump that came about when China decided to disclose starting in 2015, as the chart clearly shows.

Bottom line: facts matter. To say the dollar is falling down the rabbit hole because China is buying gold instead of holding dollars is just not true.


Barbara Rockefeller

President + Author

%d bloggers like this: