The perspective of the US Treasury emphasizes the security and reliability of Treasury Securities. Critics, however, point to different aspects. They often argue that the massive issuance of US Treasuries reflects the significant national debt, which stood at approximately $34.9 trillion as of July 2024. This growing debt, they argue, could pose long-term economic risks, including potential inflation and increased borrowing costs. Additionally, they highlight the dependence of the US on foreign investment, particularly from countries like China and Japan, which hold large amounts of US debt—around $1.15 trillion and $1.1 trillion respectively as of early 2024.
China's significant accumulation of US Treasury Securities began in the early 2000s. During this period, China's export-driven economic model resulted in substantial trade surpluses with the United States. These surpluses led to an increase in foreign exchange reserves, which the Chinese government invested in US Treasuries to ensure liquidity and safety. By 2002, China held approximately $100 billion in US Treasury Securities.
From 2005 to 2010, China's holdings of US Treasuries grew rapidly. This growth was driven by China's policy of maintaining a stable exchange rate for the Yuan, which involved buying large amounts of US dollars and subsequently investing in US Treasury Securities. By 2008, China's holdings had surpassed $500 billion. This period also saw the global financial crisis, during which US Treasuries were viewed as a safe haven, further boosting China's investments.
China's US Treasury holdings peaked between 2012 and 2014, reaching over $1.3 trillion. This peak reflected China's continuous trade surpluses and the ongoing strategy to manage the Yuan's value by accumulating dollar reserves. In 2014, China held about 40% of its foreign exchange reserves in US Treasuries, marking the height of its investment in US debt.
Starting in 2015, China began to gradually reduce its holdings of US Treasuries. This reduction was partly due to China's efforts to diversify its foreign exchange reserves and mitigate risks associated with holding a large amount of dollar-denominated assets. Additionally, China's economic strategy began to shift towards promoting the international use of the Yuan or RMB. By mid-2019, China's holdings had decreased to around $1.1 trillion.
