20.06.2021

China may collapse the dollar by selling part of the US public debt

China can get rid of part of US government bonds and thereby collapse the dollar, the South China Morning Post warns. According to the journalists of the publication, this step will be a response to the allegations made by Washington on the distribution of COVID-19.

Currently, the US debt to China is about 1.1 trillion dollars. At the same time, the American media is increasingly discussing rumors that the White House may abandon its obligations to the PRC by actually declaring a default on securities.

Analysts doubt that the Americans will take such extreme measures. However, the fact of such a discussion can make Beijing protect itself from risks and sharply reduce the volume of investments in US bonds.

Moreover, the Celestial Empire can choose the most inappropriate moment for Washington for such a maneuver, which will shake the entire US securities market. As a result, a powerful blow will be dealt to the dollar as a world reserve currency.

“China could provoke a collapse of the dollar and financial markets by selling US government debt,” the newspaper writes. Reporters also admit that Beijing may simply stop buying new bond issues.

Recall that earlier, US President Donald Trump called the incompetence of China the reason for the start of the new type of coronavirus pandemic. In addition, the Americans often voiced accusations that COVID-19 was artificially created in a Chinese laboratory in Wuhan.

“China is going to bring down the dollar”: economists have evaluated the prospect

China could collapse the dollar and the American securities market – having sold the lion’s share of the US public debt, which is in the hands of Beijing. Such an apocalyptic scenario of the confrontation between the two most powerful economies in the world was drawn by the South China Morning Post (SCMP). We asked experts how realistic this is.

There are reasons for such a development of events, as SCMP predicts – and quite real. In fact, Beijing holds in its hands (or rather, in the reserves of its National Bank) the “Kashchev needle” in the form of US Federal Reserve bonds for an impressive amount of $ 1.12 trillion. For over 10 years, he remains Washington’s largest foreign lender. This is due to the strict orientation of the Chinese economy to export and a long-term surplus in trade with the United States.

With the world’s largest – more than $ 3 trillion – dollar reserves, China invests a substantial part of them in US government bonds, whose yield is higher than, for example, government securities in Germany or Japan. Consequently, purely theoretically, at one “fine” moment, Beijing can pay Washington its entire debt for payment: with the very consequences that the press writes about.

But in reality, Beijing sells US Treasury bonds not often and in relatively small doses – in order to maintain the renminbi. In general, the Chinese financial authorities do not have an alternative: now the Chinese economy continues to slow down, key macroeconomic indicators are declining. In this situation, a trade and diplomatic conflict with a long-time “sworn friend” creates additional risks. The national currency rate again reached the level of 7 yuan per dollar, which did not exceed since 2008.

“Similar horror stories like those of SCMP sound constantly,” says Aleksey Portansky, professor at the Higher School of Economics and Politics at HSE. – But there is no smoke without fire: China really has a powerful potential lever of influence on America, and experts take this into account. At the same time, China is aware of all the negative consequences, including for itself, of the consequences of such a radical step as the rejection of US Fed bonds. ”

Recently, Beijing has been following a foreign policy in the foreign policy, trying to avoid even the smallest risks. For example, in a trade deal with the United States that entered into force on February 14, 2020, he made serious concessions because he was experiencing economic difficulties and could not afford to act from a position of strength. Accordingly, according to Portansky, the publication in SCMP does not reflect the official position of the Chinese leadership, it is only a journalistic attempt to intimidate the administration of President Trump.

If in this context we recall Russia, then for it the hypothetical collapse of the dollar is not at all profitable. Our country exports oil, which is still traded in dollars. If something happens to the American currency, in what then will we receive revenue?

By the way, in recent years, the Russian monetary authorities have systematically reduced the share of the “American” in the holdings of the Central Bank and increased the share of other currencies – in particular, the renminbi. However, when it comes to import purchases, one must in any case have in stock dollars and euros, which sometimes have to be purchased on the market.

“Right now I’m browsing the Global Times website. This respected English-language newspaper reflects the position of the nationalist part of the Chinese establishment, ”Oriental political analyst Yuri Tavrovsky told MK. – So, the publication writes that the American debt should not be touched in any case, since it is huge, and the market still cannot be brought down. In addition, in the current macroeconomic circumstances, Beijing will not be able to place such a large amount anywhere. ” So on his part it will be a crossbow, complete madness, Tavrovsky summarizes.

The idea sounds spectacular, but nothing more. Even Chinese nationalists do not seriously consider this option of “revenge on Trump”. The restrained comment of the Global Times regarding the fate of the US Federal Reserve bonds, according to the interlocutor of MK, indicates a lot. This newspaper, which loves to “swing a saber,” stated in an editorial on May 8: China needs to have a thousand nuclear warheads and one hundred intercontinental missiles for their intended delivery.

Apparently, the presence of such weapons for the PRC is seen by the authors as a more realistic prospect than the “peaceful” sale of the US public debt.

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