Can China invoke the Nuclear option? Sell US Treasury Bonds!

China is the largest holder of US Treasury bonds.

Whatever we print and sell, China buys and holds as its foreign exchange reserve – a potent currency to fuel its global ambition to acquire new assets and capture new lands and markets across the world.  The US Dollar or anything that is denominated in USD buys pretty thing any much around the world.

In the height of frustration and emotion, can China retaliate and start dumping its hoard of US Treasury Bonds?  Dumber things have happened before but certainly this is most unlikely.

Dumping the US Bonds en-masse will be self-destructive for China.  This is the nuclear option – will damage China financially regardless of the ensuing effects for the United States economically………..

Bond prices will plunge, Long-term interest rates will spike up in the US and elsewhere.

China will be doing Chairman Powell’s job except it may expedite and precipitate the interest rate hikes.

Further, if it converts the proceeds into RMB then USD will weaken. Again damaging its exports to the US. Worse than Tariffs.


Leave a reply:

Your email address will not be published.

WordPress Anti-Spam by WP-SpamShield

Site Footer

© Mark Chockalingam. All Rights Reserved.