Increasing foreign bank holding of dollars reduces the domestic effects of the inflation that Bush and the Fed have been hustling since W announced the "devaluation" of the dollar shortly after he was elected. In the era of fixed and minutely managed exchange rates devaluation meant that the government increased the number of dollars it would permit/require a holder to exchange for a given foreign currency. With the advent of market valuation of currencies, devaluation just means that the government is increasing the rate of money creation. The benefits are only temporary and quickly reversed and then neutralized as users of money readjust their own evaluations. Devaluation is not quite "useless," however. To the extent that foreign governments increase their holdings of devaluing dollars they are importing our own inflation and reducing its effects here. The foreign banks are increasing the number of dollars they hold but not necessarily the value of their dollar denominated assets. Devaluation also serves to reduce confidence in the money and makes economic calculation more difficult and thus less efficient, acting as a drag on the devaluing/inflating economy.
Make sense, but then why is it that the biggest recent devaluations were '85 - '88, and 2002 -'04 (look at the value of dollar, again), and both times the economy soared.
To the extent that foreign governments increase their holdings of devaluing dollars they are importing our own inflation and reducing its effects here.
Bears a repeat. :)