Essay Who Is Buying Us Treasury Bonds and Why

1103 Words Nov 23rd, 2015 5 Pages
In this report, we are going to answer question 9 “who is buying US treasury bonds and why”. With the development of economic globalization, countries have a deep communication on the import and the export. Generally speaking, US dollar is the main way to trade in this environment. Therefore, to keep a relative stable exchange rate between home currency and US dollar becomes a topic for every country. Buying US treasury bonds is the main way to control the balance between home currency and US dollar. On the other hand, different countries have their own reasons to buy US treasury bonds except this main reason as well. We are going to answer this question from talking about the reasons China, Japan and EU buying US treasury, because they …show more content…
Depending on the tables, China, Japan and European countries hold the most US treasury bonds. The main reason they buying US treasury bonds is because they want to keep the stable exchange rate between their host currency and US dollar. In this situation, they can keep their advantage on the export and the value of their dollar reserves. For China, there are the three main reasons for buying US treasury bonds. 1. China always uses export to support the job creation and keep the productivity. Since this strategy is dependent on exports, China requires RMB in order to continue to have a lower exchange rate against USD, because they can offer cheaper prices for export. 2. Since the USA is the main exporter country for China and they trade in US dollars. Therefore, China has lots of US dollars on hand, buying American security bonds is an investment. 3. If it stops buying US bonds, the amount of dollar in the USA will decrease which leads the value of dollar increasing. In this situation, to keep the amount balance of US dollars in the market, American government need to print more dollars. Therefore, there will be more dollars in the market. The value of dollars will decrease. To avoid this, Chinese government must send dollars on the hand to the market. Buying us bonds is easy and fast. For Japan, there are two main reasons for buying US treasury bonds: 1. Like China, Japan export more

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