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China tried to allay concerns about the damage it could do if it sold the $900 billion worth of U.S. treasuries it currently holds. On Wednesday, its foreign exchange agency assured the press that China’s dollar holdings are not a “nuclear weapon” that could be used to blackmail America, and that the issue “should not be politicized.”
The statement seemed to have been in response to a 2007 statement by two Beijing officials who argued that China could and should use America’s debt as a political weapon or “bargaining chip” to counter congressional calls to revalue the yuan and impose trade sanctions on Chinese goods. At the time, Chinese state media referred to the country’s stockpile of U.S. dollars as its economic “nuclear option,” capable of destroying the dollar at will.
China is America’s biggest creditor and holds over $1.5 trillion in U.S. dollar-denominated assets.
The agency said the money it had lent to America was strictly an economic investment designed to benefit the Chinese people.
Echoing earlier appeals by Chinese leaders, the agency then called on Washington to follow prudent economic policies to protect the value of Beijing’s investments. The statement also reassured investors that there was no need to worry that China was shifting out of dollars and buying gold.