[Question] Buying US debt (what is given to US)?

Discussion in 'Markets & Economies' started by spets1, May 1, 2011.

  1. spets1

    spets1 New Member

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    As I currently understand.

    US runs deficit. SO it needs money.
    The government then makes up IOU's (i think treasuries) and wants to sell them.

    Then comes China (or another country) and says: We will buy your debt (treasuries).

    Question: What does China give to US for the treasuries?

    Is it Chinese currency or US currency? Something else?

    To give them Chinese currency China can print Yuans.
    It however cant print US dollars. However US does not need Chinese yuans.
     
  2. boston

    boston Active Member Silver Stacker

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    Very good question, and one that I do not know the answer to. Anyone elighten us?
     
  3. Argentum

    Argentum Active Member

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    probably doesnt matter if they exchange on current exchange rate. And yes US can use yuans to buy all those chinese made toys, clothes etc
     
  4. rbaggio

    rbaggio Active Member Silver Stacker

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    Don't know :p


    This implies they buy US treasuries in RMB.

    http://en.wikipedia.org/wiki/Currency_intervention

    When the central bank net buys USD, and "sterilize" the excess dollar flows by buying dollar-denominated assets, such as U.S. treasuries. This has the effect of keeping the excess dollars out of the currency exchange markets, where they would cause a correction in the exchange rates. Thus, the Chinese central bank manipulates the exchange rates by creating yuan and buying U.S. debt.


    EDIT: This discussion says the opposite, i.e. China buys US treasuries with the USD they get for their exports to the US:

    http://reddit.independent.co.uk/r/E...hina_buys_us_treasury_bills_to_keep_the_yuan/
     
  5. Clawhammer

    Clawhammer Well-Known Member Silver Stacker

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    What 'rbaggio' said ;)
     
  6. spets1

    spets1 New Member

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    Can anyone answer this with any certainty?
     
  7. u9026a

    u9026a New Member

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    China has a big pile of US$ that it gets from accepting payments from overseas businesses in US$, then the Chinese equivalent of their Central or Reserve Bank swaps the US$ for Yuan and gives that to the trading business in China. So it has a very large supply of US$ in it's foreign exchange reserves.

    So when they buy US Treasuries, they pay in US$.
     
  8. perthsilver

    perthsilver Member Silver Stacker

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    They use the USD that they get through exporting goods to the US.
    If they were to put this money back into the market it would cause the USD to weaken and the yuan to strengthen which would be bad for exports.
    So the chinease central bank neutralises these dollars by buying US dollar assets, ie treasuries.
     
  9. Argentum

    Argentum Active Member

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    If they were dealing with zimbabwe they probably wouldnt accept their money but with chinese their currency is pretty stable so dont think they mind as its also one of their largest trading partners,if chinese were going broke they would probaly only accept dollars or any other currency thats stable, thats what i would do
     
  10. Markwalu

    Markwalu New Member

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    Central or Reserve Bank Swaps the US$ for Yuan. China then uses this for trading businesses which gives china a great supply of US$ in it's foreign exchange reserves.
     
  11. Nukz

    Nukz New Member

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    You buy the bond from the US for 1 million, your effectively loaning the US 1 million for which the US will pay you the interest on that loan.

    It would be purchased by China in USD because its the reserve currency, and China has plenty in reserves.
     
  12. thehuckler

    thehuckler New Member

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    That is what I would have assumed.
     

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