U.S. Treasury International Capital Flows Index Still Healthy, but Unveiled China’s Diminishing Holdings

According to the latest release of U.S. Treasury International Capital Flows (Index: TIC Flows), The U.S. Department of the Treasury recently released Treasury International Capital (TIC) data for February 2023. The next release, which will report on data for March 2023, is scheduled for May 15, 2023.

The resulting total in February of all net foreign purchases of long-term securities, short-term U.S. securities, and banking flows posted a net TIC inflow of $28.0 billion. Of this, net foreign private outflows were $37.4 billion, and net foreign official inflows were $65.5 billion. Meanwhile, foreign residents increased their holdings of long-term U.S. securities in February; net purchases were $63.6 billion. Net purchases by private foreign investors were $9.4 billion, while net purchases by foreign official institutions were $54.2 billion.

Yet, The People's Bank of China's, PBoC’s, investment in U.S. Treasuries has dropped materially to its lowest level in 12 years. According to information provided by the U.S. Treasury International Capital Flows, China's portfolio of investments in U.S. government debt eased by another $10 billion in February, to a mark of $848.8 billion.

According to FT, there is a shift towards paying invoices in other currencies, and trying to set up alternative payments and clearing systems that bypass SWIFT and the TIC system. The yuan’s share in Russia’s import and export settlements during 2022 jumped to 23 percent and 16 percent, respectively, from, 4 percent and 0.5 percent. China has created emergency yuan swap lines with some other central banks in a bid also to encourage more local currency trade financing that bypasses the US dollar. It is developing its own international payments' infrastructure has also encouraged Saudi Arabia, other oil states and Brazil to finance more trade in yuan.

Meanwhile, according to a report by Eurizon SLJ Asset Management, the share of forex reserves held in U.S. dollars by the world's central banks has decreased to less than half of total global reserves. The report said U.S. sanctions imposed on the Bank of Russia have eroded confidence in the dollar as a reserve currency. As a result, countries' dollar reserves have fallen cumulatively to 47% due to decreasing confidence in the U.S. currency, down sharply since 2021, when dollars made up 55% of average sovereign investment funds’ baskets.