Why is China America’s Biggest Banker?

China holds about $1.3 trillion in U.S. debt in the form of U.S. treasuries. (Image: Jason Howie/Flickr)
China holds about $1.3 trillion in U.S. debt in the form of U.S. treasuries. (Image: Jason Howie/Flickr)

The U.S. debt is more than $17 trillion, and China is its largest foreign owner. Currently, China holds about $1.3 trillion in U.S. debt in the form of U.S. treasuries.

Owning treasuries helps China’s economy grow by keeping its currency weaker than the U.S. dollar. This keeps products exported from China cheaper than U.S. products.

Selling debt to China allows the U.S. economy to grow by funding federal government programs. It also keeps U.S. interest rates low.

China guarantees the value of the yuan is always lower than the dollar  holding it at a fixed rate to keep its export prices competative.

When the dollar falls in value relative to the yuan, the Chinese government buys treasuries, which increases demand for the dollar, increasing its value.

If China sold part of its debt holdings, U.S. interest rates would rise, slowing U.S. economic growth.

However, if China called in its debt all at once, demand for dollars would plummet. This dollar collapse would disrupt international markets, causing China’s economy to suffer.

Because of its ability to ship low-priced goods, China’s economy has grown rapidly. This maintains economic and political stability, so China will remain America’s biggest banker.

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