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.