Jun

25

 Will China liquidate its holdings of US debt to pay for the recovery?

"BLACKROCK WARNS: China's debt has lost its potency and is now 'turning into poison'"

Jordan Low asks: 

What would they do with the US dollar? Convert it back to RMB and hurt Chinese exporters? 

Rudy Hauser writes: 

To get rid of dollars they could import goods and services, make investments dominated in other currencies or buy other currencies. They could just invest in other U.S. investment possibilities (including equities, real estate, etc.) In the aggregate the only way foreigners can get rid of U.S. dollars is to buy goods and services. They can also make fixed investments, but the returns and proceeds upon sale would be in U.S. dollars, so they would not really have reduced their dollar holdings. They can of course make investments in the U.S. that decline in value. (They could also convert to currency and burn it, but that is not a logical choice.) An other alternative is to give the dollars to Americans as a gift, another unlikely choice. Yes, the Chinese could buy RMB for dollars if they find someone who has RMB to sell. To the extent Americans hold RMB that they would sell for US dollars, the gross positions would change but not the net positions.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search