Debt Deal: What the World Thinks of Us Now The debt deal out of Washington may have averted a big sell-off of U.S. Treasury bonds. But even though big Treasury holders like China and Japan haven't run for the hills, the response of foreign countries to the deal has been pretty tepid. Russian Prime Minister Vladimir Putin, for one, said the deal was "not that great overall because it simply delayed the adoption of a more systemic solution." Indeed, the political turmoil leading up to the debt deal, along with the deal's remaining uncertainties, may have tainted foreign perceptions of our trusty currency for good. Take China. Following the debt deal, its central bank chief announced that China would continue moving its foreign exchange reserves out of U.S. dollars, and a small Chinese credit rating agency downgraded U.S. sovereign debt. Of course, it's no secret that China, the biggest foreign holder of U.S. debt, has been wanting to diversify its dollar holdings for years. And there's no telling whether the Chinese government pays any attention to its rating agencies" views. But its desire to ditch the dollar can't be shrugged off. As I've said here and here, the only thing keeping it from shedding more dollars is a lack of better alternatives. China's new purchases of foreign reserves have already taken a different direction. Roughly 75% of its increased foreign assets this year have been in euros. As for countries with smaller stashes of U.S. debt, they have some other options. South Korea, the seventh largest holder of U.S. Treasury bonds, responded to the debt deal by announcing it had tripled its holdings of gold over the past two months, traditionally considered a hedge against a declining U.S. dollar. Other emerging market countries are following suit, reports the Financial Times. The purchase is the latest in a series of gold acquisitions by emerging market economies intent on diversifying reserves away from the faltering dollar. In its latest statistical update this week, Thailand revealed it had added about 17 tonnes of gold to its reserves in June while China, Russia, India and Mexico have acquired large amounts of the metal in recent years. South Korea is also trying to move cash to China. In May it announced it will move more than $300 billion of its foreign reserves into renminbi-denominated assets in China. Granted, China's government still has its financial markets under tight control, but it is slowly allowing big institutions to move in. Of course, these are all minor moves in a currency market still dominated by U.S. dollars. That's good news for the U.S. economy in the short-term, because it lessens the threat of a massive sell-off and keeps borrowing rates relatively cheap. But the recent pileup of central banks and sovereign wealth funds into gold (according to the FT, central banks are on their biggest bullion buying spree in 40 years) is a warning signal that global esteem for the almighty dollar (and the U.S. economy's strength) is already eroding. The longer the debt fiasco rages on in Washington, the more foreign debt holders will be wracking their brains for other ways to escape.