Reuters’ Emily Flitter asks in a recent column What is Plan B if China dumps its U.S. debt?
It is worth asking about U.S. officials’ Plan B just in case one day relations take a surprise turn for the worse and Beijing dumps its holdings of U.S. treasuries.
China is officially the United States’ biggest foreign creditor, with roughly $900 billion in Treasury holdings — or over $1 trillion with Hong Kong’s holdings included.
That means it could do severe damage to U.S. debt markets if it suddenly started selling large amounts.
This is not a “just in case” scenario. China has already been taking steps to curb their US Treasury purchases, lowering their U.S. debt holdings from $929 billion to $896 billion between November of 2009 and 2010 (Hong Kong’s year over year holdings are down as well). Chinese President Hu Jintao made it clear where the Chinese stand with regards to the US dollar of the future calling the current dollar-led global monetary system a “product of the past.” While this may not necessarily mean the Chinese will one day, all of a sudden, halt all purchases of US debt, it is certainly reason for concern to those hoping to maintain a strong and stable U.S. currency. Our major foreign creditor is reducing their exposure - (Read More....)