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Thread: If China decreased her massive holdings of US dollars, what would happen?

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[quote=APAULT,236975]China will not sell them if it is a risk to the world economy, or equally a risk to China's or the US economy, so I wouldn't be worrying  on that score.

If China sells them someone else buys them!  Other countries or private investors.  If China sells them it will be holding cash loses it interest  compared with having the money in treasury bonds.  So it will have to find alternative safe investments... Euro bonds perhaps.  And the people who sold them will perhaps buy US bonds that China sold! (Ok it's a bit more complex than that, but essentially true).  Of course, if no one wants to buy US bonds we could have a problem, but that has not been true so far...and see my opening sentence!

The issue behind this is that the US is in debt to the rest of the world (but that does not necessarily matter, another issue) and China has massive savings against the rest of the world.    China could spend its savings, either on consumption or on investment.  But the economy is growing at such a fast rate that accelerating it further would not be wise.  China is slowly revaluing the RMB as part of the strategy (as so politely requested by the USA !!!) and can use the savings in the future to keep the economy going when it finally begins to slow down.

No need to panic![/quote]

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