Why is China Telling the U.S. How to Handle its Debt?
China (NYSE:FXI) is urging the U.S. to boost market confidence in the dollar (NYSE:UUP) and U.S. government debt (NYSE:TLT). “We hope the U.S. government will take responsible policies and measures to boost global financial market confidence and respect and protect the interests of investors,” reads a statement posted on China’s State Administration of Foreign Exchange website.
The plea to U.S. policymakers was part of a response to the question of whether Beijing will cut its investments in the U.S. Treasuries. The State Administration of Foreign Exchange is a Chinese government agency that manages the country’s $3.2 trillion in foreign exchange reserves, a good portion of which has been invested U.S. Treasuries because they are the world’s biggest and most liquid asset class. It is estimated that roughly two-thirds of China’s reserves are invested in dollar assets.
While China’s reliance on the dollar (NYSE:UUP) is now putting the country’s economy in danger, China’s currency regulator reminds that treasuries are “an important investment product for both U.S. domestic and international institutional investors.” Investment opportunities to scale with China’s needs are limited , and its currency regulator says that oil (NYSE:USO), gold (NYSE:GLD), silver (NYSE:SLV), and other commodity markets (NYSE:RJI) are too small and volatile for large investments. Until now, U.S. Treasuries (NYSE:TLT) have seemed the safest investment.