During the wave of U.S. debt selling, Russia, Iran, Turkey, and India gave up on the dollar settlement. According to the U.S. Treasury Department's May International Capital Flows Report (TIC), China's holdings of U.S. Treasuries fell by $22.6 billion to $980.8 billion in the month, down 9% from a year ago, for the sixth consecutive month of decline, and the first time since May 2010 that its position was less than $1 trillion.

Among the countries and regions that mainly hold U.S. Treasuries, China was also the country that sold off the most in May.

Notably, although Japan remains the largest holder of U.S. debt, the country's holdings of U.S. Treasuries fell by $5.7 billion in May from a year earlier to $1.2128 trillion, and have been reduced for three consecutive months, with total holdings continuing to set new lows from early 2020.

Even Australia has recently settled a batch of iron ore in yuan for the first time in history. This makes one ask, is the global "de-dollarization" accelerating?

A U.S. debt selling wave is coming.

The TIC report shows that in May, global central banks and sovereign wealth funds such as overseas official institutions sold $34.1 billion of U.S. debt, brushing off the largest monthly sale since the outbreak of the new crown epidemic in the United States.

The reduction of U.S. debt holdings by global multinational and institutional investors is also a reflection of the global "de-dollarization" process. According to ZeroHedge statistics, the global U.S. debt reserves have continued to decline over the past two years, and by June this year, they had fallen to the lowest level since October 2020.

The U.S. debt held by the No. 3 position increased by $21.3 billion in May to $634 billion, leaving the lowest position in six months, set in April. Among the top 10 holding countries and regions, the Cayman Islands, Luxembourg, Ireland, and Brazil also reduced their holdings of U.S. debt in May.

In addition to China, the largest sellers of U.S. debt in May were Ireland, which had the 7th largest position, and Canada, which had the 12th largest position, reducing their holdings by $20.3 billion and $9.4 billion, respectively.

According to the financial blog ZeroHedge analysis, several factors are driving foreign investors to sell U.S. debt. On the one hand, the Federal Reserve is in the midst of an aggressive rate hike, driven by inflation at a 40-year high, and is expected to raise rates by at least 75 basis points again next week. Higher U.S. bond yields mean lower bond prices, which can be costly for investors who don't plan to hold to maturity.

Russia and Iran drop the dollar in bilateral deals.

In addition, several countries are planning to de-dollarize their trade. Russian Presidential Press Secretary Vladimir Peskov said that on Russian President Vladimir Putin's upcoming visit to Iran, both Moscow and Tehran are reliable friends and partners. He said the two countries would gradually abandon the practice of using the dollar to assess the volume of bilateral trade.

"We both know that the total volume of trade and economy between the two countries exceeded $4 billion last year, although it may be wrong to calculate (the figure) in dollars, and over time, as our cooperation in the financial sphere of banking develops, we may abandon this practice," Peskov said.

And he said that with the deepening of bilateral financial cooperation, the two countries will gradually abandon dollar settlements in the future.

Peskov added that Russia and Iran have the opportunity to establish cooperation to minimize the impact of Western sanctions. Data shows that in the first four months of this year alone, bilateral trade grew by 31 percent, and the trend of bilateral trade is moving in a positive direction. He believes that Russia and Iran have an opportunity to establish cooperation to mitigate the impact of sanctions.

According to his description, Iran, which has been under Western sanctions for more than a decade, has adapted well and is committed to the development and improving the well-being of its people despite the restrictions. Similarly, Russia has gotten used to sanctions.

Nigeria, Turkey, and other countries. "de-dollarize"

Nigeria's ambassador to Russia, Abdullahi Shehu, said that Nigerian banks are in talks with Russian banks on trade settlement in local currency between the two countries, in addition to discussing the possibility of accessing the financial information transmission system developed by the Russian central bank.

Senior Turkish officials claim that Turkey and Russia are discussing a mechanism that would allow the two countries to trade in local currency. The mechanism would allow Turkey to pay for some of its energy imports in Turkish lira.

If finalized, Turkey would be able to reduce its use of foreign exchange reserves to purchase gas from Russia. Any lira payments to Russia could be used by Russia to import goods from Turkey, while rubles would also be part of the scheme.

Previously, the RBI also introduced a rupee settlement mechanism for international trade. Specifically, invoices, payments, and settlements for the import and export of goods will be settled in rupees. This is to promote the growth of global trade, increase the interest of the global trading community in the Indian rupee and promote India's exports.

In this regard, Xu Yang, chief economist of the Hong Kong-based China Resources Fund, pointed out that the latest mechanism launched by India has an important role in promoting the removal of the influence of the U.S. dollar hegemony, the harvesting effect of the dollar hegemony in the process of currency internationalization of major economies will be further weakened.

While countries continue to "de-dollarize", overseas private capital has continued to pour into various dollar assets in the past two months. Because this overseas private capital is more sensitive to the Federal Reserve's sharp interest rate hikes brought about by the buy-up dollar arbitrage opportunities.

But some professionals pointed out that as the risk of recession in the United States began to increase, global private capital may also quickly change face-especially in the U.S. recession led to a decline in the price of U.S. dollar assets, the capital of profit decided to quickly leave the field to hedge.