China drew some headlines in and for buying up a lot of gold to store in its bank vaults, but the real safety net for the yuan is the worldwide belief in the dollar. It's politically popular to say that the Chinese "own the United States" because they are such a huge creditor.
The reality is very different than the rhetoric. If the Chinese suddenly decided to call in all of the federal government's obligations which isn't possible, given the maturities of debt securities , it is very likely that others would step in to service the market. This includes the Federal Reserve, which already owns nearly three times as much debt as China. Second, the Chinese rely on American markets to buy Chinese-produced goods. Artificially suppressing the yuan has made it difficult for a growing Chinese middle class , so exports are needed to keep businesses running.
Consider what the current arrangement means: The Chinese buy up dollar bills in the form of Treasuries. This helps inflate the value of the dollar. In return, American consumers get cheap Chinese products and incoming investment capital. The average American is made better off by foreigners providing cheap services and only demanding pieces of paper in return.
Department of the Treasury. Accessed Mar. Bureau of the Fiscal Service. World Bank. Congressional Research Service. Office of the Historian. Federal Reserve Bank of St. Government Publishing Office. Treasury Bonds. Your Privacy Rights.
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We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. This quantitative easing QE stimulated the economy by keeping interest rates low and infusing liquidity into the capital markets, giving businesses continued access to low-cost borrowing for operations and expansion.
The Fed purchased Treasurys from its member banks, using credit that it created out of thin air. It had the same effect as printing money. By keeping interest rates low, the Fed helped the government avoid the high-interest-rate penalty it would incur for excessive debt. The Fed ended quantitative easing in October As a result, interest rates on the benchmark year Treasury note rose from a year low of 1. But just a few years later, it purchased Treasurys again.
Treasurys, making it the largest foreign holder of the national debt. Both Japan and China want to keep the value of the dollar higher than the value of their currencies. That helps keep their exports to the U. Despite China's occasional threats to sell its holdings, both countries are happy to be the biggest foreign holders of U.
Its holdings have increased in rank as Brexit continues to weaken its economy. So while many people believe that much of the U. This means U. Hilarey is an associate editorial director for The Balance and has held full-time and freelance roles at a variety of financial media companies including realtor. Department of the Treasury. Federal Reserve Bank of St. Accessed Oct. Board of Governors of the Federal Reserve System. Federal Reserve Board of Governors.
Congressional Research Service. Securities: Implications for the U. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content.
Create a personalised content profile. Measure ad performance. Select basic ads. Consumer prices soar again and push U. Jeffry Bartash. Jeffry Bartash is a reporter for MarketWatch in Washington. Why the new tax law caused a 'perfect storm' for Roth IRA conversions.
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