Question

China has rapidly risen to global economic prominence. China’s enormous foreign reserves are invested in the world’s safest investment: U.S. Treasury bonds. What would be the economic consequence of China divesting itself fully or substantially of its enormous holding of U.S. Treasuries?

Answer 1

China hold US government securities worth $ 1.2 Trillion which is considered as significant ones. It is estimated that if china divests these securities fully, there might be ill repurcussions for US economy. Although China control sizeable share of US securities, following points must be considered:

• If china divests these securities, Federal reserve can buy more than that.
• If china divests, it will leads to appreciation of chinese currency which has been kept undervalued artificially. and Dollar which is artificially appreciated would witness fall in its value.

To sum up, China decisions of divesting securities is scantly likely to affect US economy in any significant manners.