China just dropped an absolute bombshell, entirely ignored by the mainstream media in the United States. The central bank of China has decided that it is “no longer in China’s favor to accumulate foreign-exchange reserves”. So in other words – China sees little need to continue “hoarding” USD as they have in the past ( in order to keep their own currency suppressed ) and is likely to stop purchasing U.S Debt as well.
As well China also announced last week ( again – completely ignored in mainstream media ) that they will soon look to price crude oil in Yuan on the Shanghai Futures Exchange, bypassing the need for exchange in USD.
The implications and ramifications are massive.
- China is now the number one importer of oil in the world, and will soon openly challenge use of the petrodollar.
- Dropping the purchases of U.S denominated debt leaves only the The Fed (as no one else in there right mind is buying U.S Treasuries ) so we can likely expect further downside in bond prices…and of course the dreaded inverse – rise in interest rates.
- When China starts dumping dollars and U.S denominated debt, it’s pretty safe to say the rest of the world will too.
- Allowing the Yuan to in turn “appreciate in value” will make all those wonderfully cheap products sold in The United States much more expensive.
In all….this is likely the largest , most significant story / issue now facing the U.S as China’s “backstop” to the U.S Dollar and never-ending purchases of U.S Debt “until now” have been primary drivers in supporting “whatever it is you call this” economic recovery.
Pulling the rug on U.S Dollar and debt purchases is without a doubt the move that “takes the queen”.