China remains the world’s second-largest holder of US treasuries, standing at about $1.08 trillion. Japan is number one, with $1.26 trillion in US debt.
Growing tensions between the US and China over the handling of the COVID-19 pandemic may finally prompt Beijing to “use its more than $1 trillion hoard” of American Treasuries “as financial leverage against the US”, the website Market Watch reports.
The potential scenario could take place as the US Federal Reserve System is dealing with unprecedented measures amid the ongoing COVID-19 crisis. The Fed had already almost zeroed the key rate and launched a programme of unlimited purchase of government bonds and mortgage-backed securities.
In the first quarter, over two trillion dollars were poured into the national economy to help it stay afloat in the face of the coronavirus pandemic’s impact.
The Fed is expected to announce its decision on the key rate on 10 June, with speculation already swirling that a below-zero rate may ultimately result in the dollar’s devaluation, which may in turn prompt investors to turn away from relying on the US national currency.
Сhina Reportedly Mulls Slashing ‘Vast Holdings’ of US Treasuries
The Standard Chartered Bank analysts’ remarks came after the newspaper South China Morning Post (SCMP) reported that Beijing may decide to cut “its vast holdings of US Treasury securities” in the next few months in response to bilateral trade tensions and Washington’s accusations of COVID-19 coming from a Chinese biolab.
The SCMP also referred to Cliff Tan, East Asian head of global market research at the Japanese bank MUFG, who called the scenario “such a crazy idea that anyone who has made it should really have their fitness for office reconsidered”.
Iris Pang, Greater China chief economist at ING Bank, in turn, suggested that Beijing would try to shun swiftly offloading its US government debt without mulling over other punitive measures against Washington.
Pang predicted that in the next few months, China may halt its Treasury purchases “to send a clear signal of its intentions; if it decides to do that, it could make actual sales [of its other holdings] at a later date”.
This scenario, however, “would also ignite a global financial catastrophe, hurting China as well”, according to the newspaper.
The US Treasury Department has, meanwhile, indicated in its report that China’s Treasury holdings plummeted to $1.09 trillion in February from a peak of US$1.32 trillion in November 2013. Beijing is currently the world’s second-largest foreign holder of US Treasuries after Japan, which has $1.26 trillion in US debt.
Sourse: sputniknews.com
