Treasury securities to offer the safest investment destination for Chinese forex reserves. Multiple other investment destinations are available. With euro stockpiles, China can consider investing in European debt. Possibly, even U. However, China acknowledges that the stability and safety of investment take priority over everything else. Though the Eurozone has been in existence for around 18 years now, it still remains unstable. It is not even certain whether the Eurozone and Euro will continue to exist in the mid-to-long term.
An asset swap U. Other asset classes like real estate, stocks, and other countries' treasuries are far riskier compared to U. Forex reserve money is not spare cash to be gambled away in risky securities for want of higher returns. Another option for China is to use the dollars elsewhere. For example, the dollars can be used to pay Middle East countries for oil supplies.
However, those countries too will need to invest the dollars they receive. Effectively, owing to the acceptance of the dollar as the international trade currency, any dollar supply eventually resides in the forex reserve of a nation, or in the safest investment—U. Treasury securities. One more reason for China to continuously buy U. Treasurys is the gigantic size of the U. Buying U. Treasurys enhances China's money supply and creditworthiness.
Selling or swapping such Treasurys would reverse these advantages. Hence, as long as China continues to have an export-driven economy with a huge trade surplus with the U. Chinese loans to the U. China gets a huge market for its products, and the U. Beyond their well-known political rivalry, both nations willingly or unwillingly are locked in a state of inter-dependency from which both benefit, and which is likely to continue.
It was replaced by the British pound sterling. Treasurys that are considered virtually the safest. Apart from the long history of the use of gold by multiple nations, history also provides instances where many countries had huge reserves of pounds sterling GBP in the post-World-War-II era. These countries did not intend to spend their GBP reserves or to invest in the U. When those reserves were sold off, however, the U. Its economy deteriorated due to the excess supply of its currency, leading to high-interest rates.
Due to those restraints and the absence of a flexible exchange rate system, the selling off of the GBP reserves by other countries caused severe economic consequences for the U. Since the U. The offloaded U. The repercussions for China of such an offloading would be worse. An excess supply of U. It would increase the cost of Chinese products, making them lose their competitive price advantage. China may not be willing to do that, as it makes little economic sense. If China or any other nation having a trade surplus with the U.
Treasurys or even starts dumping its U. The ongoing worries about China's increased holding of U. Treasurys or the fear of Beijing dumping them are uncalled for. Even if such a thing were to happen, the dollars and debt securities would not vanish. They would reach other vaults. Although this ongoing activity has led to China becoming a creditor to the U.
Considering the consequences that China would suffer from selling off its U. Even if China were to proceed with the selling of these reserves, the U. It can also take other measures like Quantitative Easing QE. Although printing dollars would reduce the value of its currency, thereby increasing inflation, it would actually work in favor of U.
Real repayment value will fall proportionately to the inflation—something good for the debtor U. Although the U. Effectively, the U. China, on the other hand, needs to be concerned about loaning money to a nation that also has the limitless authority to print it in any amount.
US federal debt is still a record high. So, how does the US borrow money? Treasury bonds are how the US - and all governments for that matter - borrow hard cash: they issue government securities, which other countries and institutions buy. The US Treasury releases the figures on this every quarter - we have made them more useable.
So, who has the most? But it's down Bad as that number is, using the bald total figure is not as representative as using a measure which compares the debt to the size of the economy.
That is, debt as a percentage of gross domestic product - GDP. Treasury marketable and non-marketable bills, bonds, and notes reported under the Treasury International Capital TIC reporting system are based on annual Surveys of Foreign Holdings of U. Securities and on monthly data. Select personalised ads. Apply market research to generate audience insights.
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