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(10 points) The Wall Street journal recently reported that the Chinese central bank has decided to increase its reserve holdings of U.S. government bonds. What effect might this policy change have on the
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38 votes
(10 points) The Wall Street journal recently reported that the Chinese central bank has decided to increase its reserve holdings of U.S. government bonds. What effect might this policy change have on the U.S. bond markets, currency valuations, and the U.S. Balance of Payments

User MikG
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20 votes
20 votes

Answer:

China is that the largest creditor to the USA with over 1 trillion dollars. China has decided to scale back holding folk's bonds to retaliate against actions of the US govt.

Such action by the Chinese government will increase the value of borrowing for the United States government and therefore the value of bonds is probably going to fall.

While China is going to be getting an exchange by selling its bond holdings. The currency of china will appreciate while the US dollar will depreciate thanks to the outflow of currency.

User Reker
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