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  October 13th, 2017 | Written by

WATCH: China’s $1 Trillion in US Debt: What’s the Risk?

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  • Worries over China’s ownership of US debt stems from a misunderstanding.

Worries over China’s ownership of United States debt stems from a misunderstanding of sovereign debt, according to export Scott Miller. The purchasing of sovereign debt by foreign countries is a normal transaction that helps maintain openness in the global economy. China’s stake in US debt binds the two countries together more than it provides leverage to China over the US.

US debt is a widely-held and extremely desirable asset in the global economy. If China were to sell US debt, it would be quickly picked up by other countries.

China needs to maintain significant reserves of US debt to manage the exchange rate of its currency. If China were to suddenly unload its reserve holdings, its currency’s exchange rate would rise, making Chinese exports more expensive in foreign markets. That’s why China’s holdings of American debt do not provide China with undue economic influence over the United States.