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Asians Pulling Out of the Dollar at Record Rates as Crash Proceeds

Oct. 18, 2007 (EIRNS)—Chinese and Japanese sales of U.S. Treasuries grew in August "at a pace unprecedented in the last five years, as the US subprime mortgage crisis triggered the biggest sell-off of dollar assets since Russia's 1998 default," as reported in the China Daily. China cut its holdings of U.S. treasuries by 2.2% or $9 billion, to $400 billion, while Japan dumped 4% of its total holdings to $586 billion, the most since March 2000. Taiwan's ownership of U.S. government bonds fell sharply by 8.9% to $52 billion.

According to latest statistics, $400 billion of U.S. treasuries only account for 28% of China's $1.43 trillion foreign reserves now, a sharp contrast to years ago when most of China's foreign reserves found their way into U.S. treasuries. While the driving force is clearly the recognition that the crash is on, analysts covered by China Daily attributed the spark for the rapid exit from the dollar to the low exchange rate caused by subprime mortgage fallout, and the Federal Reserve's decision to lower the interest rate by 50 basic points. The dollar has devalued by some 7% this year against the euro. Suspicions that the Federal Reserve would cut the interest rate again further contributed to pressure for China and other countries to reduce holdings of U.S. assets.

China's State Administration of Foreign Exchange said in a conference that foreign exchange management departments should move against hot money flows, by "regulating foreign capital inflow and foreign exchange management, preventing illegal capital inflow and short-term overseas speculation, to ensure the national financial security."